Which of the following statements is (are) correct? (x) The factor-endowment theory asserts that specialization and trade tends to encourage an equalization in the relative resource prices of trading partners. (y) According to the factor-price equalization theory, international trade encourages a decrease in the wage rate in the labor abundant country and an increase in the wage rate of the relatively labor scare country such that the wage rates become equal between nations. (z) In the absence of transportation costs, free trade results in the equalization of the prices of traded goods, as well as resource prices, in the trading nations. A. (x), (y) and (z) B. (x) and (y) only C. (x) and (z) only D. (y) and (z) only E. (z) only

Which of the following statements is (are) correct? (x) The factor-endowment theory asserts that specialization and trade tends to encourage an equalization in the relative resource prices of trading partners. (y) According to the factor-price equalization theory, international trade encourages a decrease in the wage rate in the labor abundant country and an increase in the wage rate of the relatively labor scare country such that the wage rates become equal between nations. (z) In the absence of transportation costs, free trade results in the equalization of the prices of traded goods, as well as resource prices, in the trading nations. A. (x), (y) and (z) B. (x) and (y) only C. (x) and (z) only D. (y) and (z) only E. (z) only

Principles of Macroeconomics (MindTap Course List)

7th Edition

ISBN:9781285165912

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter3: Interdependence And The Gains From Trade

Section: Chapter Questions

Problem 9PA

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5. Consider an exchange economy with 2 agents and 2 goods. a) In an Edgeworth-Bowley diagram, show and illustrate that if both agents have the same preferences, the contract curve is a straight line from the bottom left-hand corner to the top right-hand corner. Explain. b) Does it follow that if the agents do not have the same preferences, the contract curve is not a straight line? Explain. c) Suppose the two agents have the same endowments and the same preferences. Is mutually beneficial trade possible? Illustrate in an Edgeworth Bowley diagram. Explain.
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Economics - International Trade Q: In figure 2.6, a positively sloped curve is drawn to show the foreign supply of exports of food rising as the price of food rises. How can this response be reconciled with the assumption that each nation’s endowment supply of commodities is fixed with respect to price?
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