In the two-sector (manufacturing and agriculture) specific-factors model, suppose that the home country has a comparative advantage in manufacturing output. Why does the return to capital change after trade occurs?
A) There is more labor used per unit of capital in the manufacturing sector.
B) There is more capital used per unit of labor in the manufacturing sector.
C) There is more labor used per unit of land in the agricultural sector.
D) There is more land used per unit of labor in the agricultural sector.

Question

Quizplus · Accepted Answer

The return to capital changes after trade occurs because the manufacturing sector, which has a comparative advantage, attracts more labor, increasing the labor-to-capital ratio and thus the marginal productivity of capital.

In the Two-Sector (Manufacturing and Agriculture) Specific-Factors Model, Suppose That