The Heckscher-Ohlin theorem predicts that when a capital-abundant country opens to trade Group of answer choices Capital owners and workers will be better off This country will import labor-intensive good The real wage in this country will increase Relative factor prices will not change
Question
The Heckscher-Ohlin theorem predicts that when a capital-abundant country opens to trade
Group of answer choices
Capital owners and workers will be better off
This country will import labor-intensive good
The real wage in this country will increase
Relative factor prices will not change
Solution
The Heckscher-Ohlin theorem predicts that when a capital-abundant country opens to trade, this country will import labor-intensive goods. This is because the country has a comparative advantage in producing capital-intensive goods due to its abundance of capital. Therefore, it will export capital-intensive goods and import labor-intensive goods.
The theorem does not necessarily predict that capital owners and workers will be better off. The impact on these groups will depend on a variety of factors, including the relative prices of the goods and the distribution of income.
The real wage in this country may or may not increase. This will depend on factors such as the increase in productivity due to trade and the impact of trade on the demand for labor.
Finally, the Heckscher-Ohlin theorem predicts that relative factor prices will change. In the capital-abundant country, the price of capital (the return to capital) will decrease relative to the price of labor (the wage rate) as the country specializes in the production of capital-intensive goods.
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