Multiple Choice
France and Italy only trade with each other. Each produces wine and bread. The production of bread is relatively capital intensive, and the production of wine is relatively labor intensive. France is relatively abundant in capital, while Italy is relatively abundant in labor. According to the Stolper-Samuelson theorem, free trade between France and Italy should result in:
A) increased real wages in both countries
B) decreased real wages in both countries.
C) increased real wages in France and increased real returns to capital in Italy.
D) increased real returns to capital in France and increased real wages in Italy.
Correct Answer:
Verified
Correct Answer:
Verified
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