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Assume a two-country two-good two-input model where the following relationships hold: (K/L)U.S. > (K/L)ROW (K/L)automobiles > (K/L)shoes Where (K/L)U.S. is the capital-labor ratio in the United States, (K/L)ROW is the capital-labor ratio in the Rest of the World, (K/L)automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L) shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. This information indicates that the United States:_______.
a. is a relatively capital-scarce country.
b. has a scarcity of land.
c. is a relatively land-abundant country.
d. is a relatively capital-abundant country

Respuesta :

Answer:

Option (D) is correct.

Explanation:

Given that,

Two countries; Two goods; Two inputs

(K/L)U.S. > (K/L)ROW

(K/L)automobiles > (K/L)shoes

(K/L)U.S is the capital-Labor ratio in U.S.

(K/L)ROW is the capital-Labor ratio in Rest of the world.

Factor abundance can be determined with the help of two concepts:

(1) Relative factor prices

(2) Relative factor endowments

Here, we are explaining relative factor endowments:

The U.S is having higher capital-labor ratio than the rest of the world which means that the U.S is capital abundant country and exports the capital-intensive commodity.

Automobile is a capital-intensive commodity because the ratio of capital-labor is higher than the capital-labor ratio of shoes. A good is said to be Capital-intensive when its production requires more capital than labor.

It is clear from the above explanation that the U.S is relatively capital abundant country.

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