According to the factor-price-equalization theorem, free trade between any two countries equalizes:
A)product prices as well as the prices of individual factors of production between the countries.
B)product prices between the countries but not the prices of individual factors of production.
C)product prices between the countries and factor prices within each country but not between the countries.
D)product prices and factor prices within each country but not between the countries.

Question

Quizplus · Accepted Answer

The factor-price-equalization theorem posits that free trade between countries leads to the equalization of not only the prices of products but also the prices of individual factors of production (like labor and capital) between those countries, assuming there are no transportation costs and factors of production are mobile within countries but not between them.

According to the Factor-Price-Equalization Theorem, Free Trade Between Any Two