If a country finds its comparative advantage in computer production, which is capital intensive, what will happen to the rental rate on capital when trade occurs?
A) It will decrease.
B) It will stay the same.
C) It will increase.
D) Not enough information is given to answer this question.

Question

Quizplus · Accepted Answer

When a country specializes in a capital-intensive industry, such as computer production, due to comparative advantage and engages in trade, the demand for capital in that country increases. As a result, the rental rate on capital, which is the price for using capital, will increase due to higher demand.

If a Country Finds Its Comparative Advantage in Computer Production