Suppose that the Home country in the twosector manufacturing

Suppose that the Home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in agricultural output. What will happen to the return (rental) on land when trade occurs? It will either rise, fall, not change, or first fall then rise.

Solution

return or rental on land will increase when trade occurs because than demand for land will increase in order produce more agricultural output. this is also said factor equalization theorem that factor prices equalize among tading partners.