Use the table for the following question
Suppose that all goods are made with two factors-labor and capital. The table below shows the total endowments of each factor in the United States and Canada. Table 4.1
Endowment of Labor and Capital

-Based on Table 4.1,according to the Stolper-Samuelson Theorem,the income distribution effects of free trade in the United States are likely to favor
A)capital.
B)labor.
C)either capital or labor, depending on U.S. productivity.
D)neither capital nor labor.

Question

Use the table for the following question
Suppose that all goods are made with two factors-labor and capital. The table below shows the total endowments of each factor in the United States and Canada. Table 4.1
Endowment of Labor and Capital
 
-Based on Table 4.1,according to the Stolper-Samuelson Theorem,the income distribution effects of free trade in the United States are likely to favor
A)capital. 
B)labor. 
C)either capital or labor, depending on U.S. productivity. 
D)neither capital nor labor.

Quizplus · Accepted Answer

According to the Stolper-Samuelson Theorem, free trade will benefit the factor of production that is relatively scarce in a country. In the United States, labor is relatively scarce compared to capital, as the country has a lower endowment of labor than Canada. Therefore, free trade is likely to favor labor in the United States.

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