Q. Assume that Country A is relatively abundant in labor and Country B is relatively abundant in land. Note that wages are the returns to labor and rents are the returns to land. According to the factor price equalization theorem, once Country A begins specializing according to comparative advantage and trading with Country B. (Solved)
1. Wages and rents should fall in Country A
2. Wages and rents should rise in Country A
3. Wages should rise and rents should fall in Country A
4. Wages should fall and rents should rise in Country A
- c. Wages should rise and rents should fall in Country A