With Free Trade, If Country X Is Relatively Labor Abundant

question 45

Multiple Choice

With free trade, if country X is relatively labor abundant and relatively land scarce and country Y is relatively labor scarce and relatively land abundant, the factor-price equalization theorem predicts that:

• A)rents will rise in country X and fall in country Y until they equalize.
• B)wages will rise in country X and fall in country Y until they equalize.
• C)rents will fall in country Y but will remain unchanged in country X.
• D)wages will increase in country Y but will remain unchanged in country X.

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Definitions:

Risk-free Rate

The theoretical rate of return of an investment with zero risk, often represented by the yield on government bonds.

Call Option

A financial contract that gives the holder the right, but not the obligation, to buy a specified amount of an underlying asset at a set price before the contract expires.

Exercise Price

The price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying security or commodity.

Exercise Price

The price at which the holder of an option can buy (call option) or sell (put option) the underlying asset.