Question

You read in a newspaper that the owners of capital in a particular country are urging their government to restrict trade through import quotas. What might you infer about the relative factor abundance in that country? Why?

Answer 1

Answer -4

A country is capital Abundant means, the country is well endowed with capital relative to others. That is the ratio of capital to labor is more than other countries. That country produces the more capital intensive product. Capital intensive means producing the good requires more capital. They export more capital intensive product and import labor-intensive product.

A country is labor abundant means, the country is well endowed with labor relative to others. That is the ratio of labor to capital is more than other countries. That country will produce more labor intensive product and export more that product and import capital-intensive product.

Here the owner of the labor in a country urging to restrict trade through quota. That means the owner of the labor wants to reduce import. From this, it can be said that this country imported more labor-intensive good. Which gave a low payoff to the labor. A capital abundant country import labor-intensive product from another country. So it can be inferred that the particular country is capital abundant.

Country would export the product which uses the abundant factor. In other words, country has some factor in abundance and it seeks to specialize in that product. Import restriction implies that country has relatively lesser availability of that factor and it is profitable to consumers to buy the imported goods.