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The Heckscher-Ohlin theorem predicts that when a capital-abundant country opens to trade Group of answer choices Relative factor prices will not change Capital owners and workers will be better off This country will import labor-intensive good The real return on capital will increase The real wage in this country will increase

Question

The Heckscher-Ohlin theorem predicts that when a capital-abundant country opens to trade Group of answer choices

Relative factor prices will not change

Capital owners and workers will be better off

This country will import labor-intensive good

The real return on capital will increase

The real wage in this country will increase

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Solution

The Heckscher-Ohlin theorem is a fundamental concept in international trade theory. It predicts the effects of trade based on the factor endowments of different countries. Here's a step-by-step explanation of the answer choices:

  1. "Relative factor prices will not change": This is incorrect. The Heckscher-Ohlin theorem predicts that trade will equalize the prices of factors across countries. So, if a country opens to trade, we would expect the relative prices of factors to change.

  2. "Capital owners and workers will be better off": This is not necessarily true. The theorem predicts that the owners of a country's abundant factors will benefit from trade, but the owners of the scarce factors may be worse off. So, in a capital-abundant country, capital owners might be better off, but workers might not be.

  3. "This country will import labor-intensive good": This is correct. According to the Heckscher-Ohlin theorem, a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively. So, a capital-abundant country will import labor-intensive goods.

  4. "The real return on capital will increase": This is not necessarily true. The theorem predicts that the return to the abundant factor (capital, in this case) will fall, while the return to the scarce factor (labor) will rise.

  5. "The real wage in this country will increase": This is not necessarily true. As mentioned above, the theorem predicts that the return to the scarce factor will rise. So, if labor is the scarce factor, then real wages might increase. But if labor is abundant, real wages might fall.

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