Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in agricultural output. What will happen to the return (rental) on land when trade occurs?
A) It will fall.
B) It will rise.
C) It will not change.
D) It will first fall, then rise.

Question

Quizplus · Accepted Answer

In the two-sector specific-factors model, when a country has a comparative advantage in a particular sector (in this case, agriculture) and begins to trade, the return to the factor specific to that sector (land, in the case of agriculture) will increase due to higher demand for agricultural products.

Suppose That the Home Country in the Two-Sector (Manufacturing and Agriculture)