In the Heckscher-Ohlin Model, as Trade Occurs in a Capital-Abundant

question 7

Multiple Choice

In the Heckscher-Ohlin Model, as trade occurs in a capital-abundant country, increased imports will force domestic import-competing firms to decrease price and production. Labor and capital will move to exporting firms. What will then happen to wages and returns to capital?

• A) Both wages and returns to capital will increase.
• B) Both wages and returns to capital will decrease.
• C) Wages will increase and returns to capital will decrease.
• D) Wages will decrease and returns to capital will increase.

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