Suppose there are two countries (Home and Foreign) that produce two goods. Home's wages are 100% greater than Foreign's wages. Will trade be possible between Home and Foreign?
A) No, because Foreign's wages are lower than Home's wages.
B) Yes, Foreign will be able to export both products to Home.
C) Yes, as long as Home's marginal productivity of labor in one product is at least 100% higher than Foreign's marginal productivity of labor in the same product.
D) No, because prices will be the same in each country.

Question

Quizplus · Accepted Answer

Trade will be possible if Home's marginal productivity of labor in one product is at least 100% higher than Foreign's marginal productivity of labor in the same product. This is because even though Home's wages are 100% higher, they can still benefit from trading with Foreign if Foreign can produce one of the goods more efficiently. As long as Foreign can produce that good at a lower cost, they can export it to Home and both countries can benefit from the trade.

Suppose There Are Two Countries (Home and Foreign) That Produce