According to the Factor-Price Equalization Theorem, what are the effects of trade on w and r...

According to the Factor-Price Equalization Theorem, what are the effects of trade on w and r in each nation?

Expert Solution

w- wage rate , r - rental rate of capital

According to factor price equalization theorem, with the help of trade what happens is that inaya labour which country where the people actually start to produce more labor-intensive goods, what happens is that the demand for labour increases with which the wage rate increases and because there is a reduction in the capital intensive good production the demand for capital decreases with which the rental rate of capital decreases.

also in a capital rich country the country starts producing capital rich goods as a result of which the demand for capital increases with which the rental rate of capital also increases. similarly in the capital rich country the demand for labour decreases due to less production of labour which used as a result of which the wage rate decreases. because in capital rich countries the wage rate is high and it decreases and in labour rich countries, the wage rate is low and eventually increases such that both become equal. the similar thing happens with the rental rate of capital where is the capital rate is low for capital which countries and eventually increases and opposite happens to labour rich countries and eventually they both also become equal

Rahul Sunny answered 2 years ago

State the Factor Price Equalization Theorem, and explain what it means. Use a diagram to demonstrate...

State the Factor Price Equalization Theorem, and explain what it means. Use a diagram to demonstrate where its main result comes from. What will happen to the wages and rents in the two countries in the long run?

State the Factor Price Equalization theorem accurately. How can it be interpreted? Under what main conditions...

State the Factor Price Equalization theorem accurately. How can it be interpreted? Under what main conditions will this theorem hold and how does it work? Please be as specific as possible

One of the propositions that flows from the Heckscher-Ohlin model is the factor-price equalization theorem. Explain...

One of the propositions that flows from the Heckscher-Ohlin model is the factor-price equalization theorem. Explain factor-price equalization, and show how the movement of goods between two countries substitutes for factor movements with the same impact on factor prices

According to the S-S Theorem, what are the effects of international trade on workers and capital...

According to the S-S Theorem, what are the effects of international trade on workers and capital owners?

Explain how the Heckscher-Ohlin theorem supports international trade between nations. 2. What is international price equalization?...

Explain how the Heckscher-Ohlin theorem supports international trade between nations. 2. What is international price equalization? give examples 3. explain two differences between the new trade theory and the traditional trade theory. 4. Explain why America is better suited to export computers while Kenya is better suited to produce hides-and-skin 5. Explain why the infant-industry argument is valid. 6. Explain one reason why the U.S. dollar has higher value than the Indian Ruppies in the international exchange rate marketplace. 7....

Which theorem states that free trade leads to an equalization of wages and rental rates in...

Which theorem states that free trade leads to an equalization of wages and rental rates in two trading countries? Explain How and Why wages and rental rates ultimately equalize.

(1). Which theorem states that free trade leads to an equalization of wages and rental rates...

(1). Which theorem states that free trade leads to an equalization of wages and rental rates in two trading countries? Explain How and Why wages and rental rates ultimately equalize. (2) What happens to the production of both goods in a country when there is an increase in labor? Which theorem will you apply here? Give diagrams to show this and explain clearly

A) Outsourcing was not an issue when the factor-price-equalization theory was developed. Does the existence of...

A) Outsourcing was not an issue when the factor-price-equalization theory was developed. Does the existence of outsourcing change the implications of the theory? Justify your answer with example. B) Both internal and external factors affect the operation of a multinational firm. Give examples for both and discuss how they would affect the operations of the multinational firm. (12marks)

Which of the following statements describes the conditions that result in factor price equalization? A: Productivity...

Which of the following statements describes the conditions that result in factor price equalization? A: Productivity rates are equal across countries and product prices are equal across countries. B: Productivity rates are equal across countries, but product prices are different. C: Product prices are equal across countries, but productivity rates are different. D: Productivity rates and product prices are different across countries.

Essay Questions. Explain carefully using theories. Which theorem states that free trade leads to an equalization...

Essay Questions. Explain carefully using theories. Which theorem states that free trade leads to an equalization of wages and rental rates in two trading countries? Explain HOW and WHY wages and rental rates ultimately equalize. What happens to the production of both goods in a country when there is an increase in labor? Which theorem will you apply here?

Question