If Australia has relatively more land per worker,and Belgium has relatively more capital per worker,then if trade began between these two countries
A) the relative price of the land-intensive product would increase in Australia.
B) the relative price of the capital-intensive product would increase in Australia.
C) the relative price of the land-intensive product would increase in Belgium.
D) the relative price of the capital-intensive product would decrease in Belgium.
E) relative product prices would diverge between Australia and Belgium.

Question

Quizplus · Accepted Answer

When trade begins, Australia will specialize in producing the land-intensive product, while Belgium will specialize in producing the capital-intensive product. As a result, the supply of the land-intensive product in Australia will decrease (as resources are being allocated to produce the capital-intensive product), while the supply of the capital-intensive product in Belgium will decrease (as resources are being allocated to produce the land-intensive product). This will cause the relative price of the land-intensive product to increase in Australia (due to decreased supply) and the relative price of the capital-intensive product to increase in Belgium (due to decreased supply).

If Australia Has Relatively More Land Per Worker,and Belgium Has