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Two countries, Spain and Portugal, use two inputs, capital and labor, to produce two goods, wine...

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Economics

Two countries, Spain and Portugal, use two inputs, capital andlabor, to produce two goods, wine and cheese. Wine is relativelycapital intensive in production and Spain is the relatively capitalabundant country.

4) According to the Factor Price Equalization Theorem wages(earnings from labor) and rent (earnings from capital) betweenSpain and Portugal will equalize:

Question 4 options:

with migration of labor and free international movement ofcapital.

solely due to labor migration.

solely due to the free international movement of capital.

due to both free trade in final goods and free movement of thefactors.

due to free trade in final goods alone.

Answer & Explanation Solved by verified expert
3.8 Ratings (524 Votes)
If wine is relatively capital intensive in production and Spain is the relatively capital abundant country Spain will specialize in production of wine and export a part of the production for cheese produced by Portugal This is based on the argument that the labourabundant    See Answer
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