The correct way to view factor price equalization is 1. the income distribution in rich countries...
The correct way to view factor price equalization is
| 1. |
the income distribution in rich countries gets improves |
|
| 2. |
wage rates in rapidly growing poor countries can grow faster than wage rates in rich countries |
|
| 3. |
the return to capital falls in poor countries and rises in rich countries |
|
| 4. |
wage rates in rich countries fall and wage rates in poor countries rise |
|
| 5. |
there is no correct way, it is totally wrong |
Homework Answers
Solution: wage rates in rich countries fall and wage rates in poor countries rise
Explanation: The factor-price equalization theorem predicts when the prices of product are equalized between nations as they move to open trade, then the prices of the factors (labor and capital) will also be equalized between countries. Thus a fall in wage rates in rich nations and a hike of wage rates in poor countries.
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The correct way to view factor price equalization is
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units of capital to Rich from left to right and to Poor from right
to left. So, for example, if Rich has 14,000 units of capital, Poor
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