The factor price equalization theorem states that international trade will bring about equalization in
A) relative returns only
B) absolute returns only
C) both relative and absolute returns
D) neither absolute nor relative returns

Question

Quizplus · Accepted Answer

The factor price equalization theorem posits that international trade will lead to equalization of both relative and absolute returns. This means that countries that specialize in producing goods that heavily rely on certain factors of production will tend to see higher returns on those factors, while countries specializing in different goods will see different returns. However, over time and through trade, these differences will tend to converge, leading to more equal returns across countries.

The Factor Price Equalization Theorem States That International Trade Will