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.

Solutions

Expert Solution

Option A - Productivity rates are equal across countries and product prices are equal across countries.

Explanation : Factor price equalization is an economic theory by Paul A Samuelson, which states that the prices of identical factors of production such as the wage rate, or the rent of capital, will be equalized across countries as a result of international trade in commodities. The theorem assumes that there are two goods and two factors of production, for example capital and labour. Other assumptions of the theorem are that each country faces the same commodity prices, because of free trade in commodities, uses the same technology for production and produces both goods. These assumptions result in factor prices being equalized across countries without the need for factor mobility, such as migration of labor or capital flows. The idea behind this theory is that when the prices of the output goods are equalized between countries as they move to free trade, then the prices of the factors such as labor and capital will also be equalized between countries.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

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

1. The concept of Purchasing Power Parity is the result of equalization of _____. a. price...

1. The concept of Purchasing Power Parity is the result of equalization of _____. a. price of financial assets b. price of labor c. price of goods d. price of currencies 2. The concept of Interest Rate Parity is the result of equalization of _____. a. price of financial assets b. price of labor c. price of goods d. price of currencies 3. Which of these are reasons why Interest Rate Parity might not be completely valid in real life?...

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?

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)

An increase in total factor productivity will lead to which of the following? An increase in...

An increase in total factor productivity will lead to which of the following? An increase in the productivity of labor but not capital. A decrease in the productivity of capital, but not labor. An increase in the productivity of labor and capital. A decrease in the productivity of labor, but not capital.

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?

Which of the following statements describes a receiving report?

Which of the following statements describes a receiving report? A. It is a report showing that the goods have been received in good condition, as ordered. B. It is a statement from the supplier showing the goods purchased and the amount due. C. It is an order to purchase goods irom a supplier. D. It is a document authorizing a payment to a supplier.

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

Which of the following statements best describes an idaas implementation

When analyzing recursive algorithms, which of the following best describes initial conditions? a) Initial conditions express...

When analyzing recursive algorithms, which of the following best describes initial conditions? a) Initial conditions express the number of times the basic operation executes when the base case is reached. b) Initial conditions represent the condition for the base case of a recursive function c) Initial conditions express the number of times the basic operation runs during the first execution of the function. d) Initial conditions express the complexity of an algorithm

Subjects