2. Which theory considers the income distribution effects of trade in the short run? a. specific-factors...

2. Which theory considers the income distribution effects of trade in the short run?

a. specific-factors theory

b. product life cycle theory

c. factor-endowment theory

d. Stolper–Samuelson theorem

3. Assume that the United States is relatively scarce in unskilled labor and relatively abundant in capital. According to the Stolper- Samuelson theorem, free trade policies would tend to be opposed by in the United States.

a. unskilled workers

b. owners of capital

c. both unskilled workers and owners of capital

d. neither unskilled workers nor owners of capita

Expert Solution

(2) Which theory considers the income distribution effects of trade in the short run?

(a) Specific-factors Theory ( Correct ) : This theory compares two goods upon a specific factors of production. This theory will consider and analyse the income distribution effects of the trade in the short run. All other options are related to international trade, but specific factor theory only considers the income distribution effect. Hence it is the correct option.

(b) Product life cycle Theory ( Incorrect ) : This theory was introduced in the year 1950. This theory explains about the life of a product in the market, more importantly international market. It tells about the stages in the products life. But this theory has nothing to do with the income distribution effects of trade in the short run. Hence it is the incorrect option.

(c) Factor-endowment Theory ( Incorrect ) : Factor endowment theory focuses upon the comparitive advantages for different countries in the international trade. It analyses the different factor of production and finds out the difference amongst them. It does not consider the income distribution effect of trade in the short run. Hence it is the incorrect option.

(d) Stopler-Samuelson Theorm ( Incorrect ) : This theory focus upon the price and the rewars given for the production of goods. It focus on the effect that arises in the international trade due to change in the prices of goods and services. Hence it is the incorrect option.

Hence, OPTION (a) Specific-factor theory is the correct answer.

Rahul Sunny answered 2 years ago

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