According to factor price equalization, if Country B is labor abundant as international trade occurs then:
A) labor should be opposed to international trade.
B) the owners of capital should be opposed to international trade.
C) both labor and the owners of capital should be opposed to international trade.
D) both labor and the owners of capital should be in favor of international trade.
E) None of the above

Question

Quizplus · Accepted Answer

The factor price equalization theorem suggests that as international trade occurs, the prices of factors (like labor and capital) tend to equalize across countries. In a labor-abundant country like Country B, international trade would lead to an increase in the demand for labor, potentially raising labor wages. However, it might also lead to a decrease in the returns to capital since the country would likely export labor-intensive goods and import capital-intensive goods. Therefore, the owners of capital might be opposed to international trade due to the potential decrease in their returns.

According to Factor Price Equalization, If Country B Is Labor