According to the factor price equalization theorem,if country A is labor abundant,then if country A initiates international trade
A)wages and rents should fall in A.
B)rents and rents should rise in A.
C)wages should rise and rents should fall in A.
D)wages should fall and rents should rise in A.

Question

Quizplus · Accepted Answer

According to the factor price equalization theorem, if a country is labor-abundant and introduces international trade, the price of labor-intensive goods manufactured in that country will increase, and the price of capital-intensive goods will decrease. This would increase the demand for labor in the country, which would lead to an increase in wages in that country. Simultaneously, the demand for capital would decrease, reducing the returns on capital. Hence, wages should rise, and rents should fall in country A.

According to the Factor Price Equalization Theorem,if Country a Is