Which of the following statements about the factor-price equalization theory and

Question

Which of the following statements about the factor-price equalization theory and the effects of transportation costs are correct? Check all that apply. When nations trade, the cheap resource becomes relatively more expensive, and the expensive resource becomes relatively less expensive, until price equalization occurs. Differences in transportation costs across countries are a source of comparative advantage The factor-endowment theory accounts for transportation costs and other trade barriers. In trading nations, the cheap resource becomes even less expensive, and the expensive resource becomes even more expensive, which facilitates the growth of trade. Which of the following statements about transportation costs are correct? Check all that apply. Transportation costs have recently become a larger expense for the global economy than was previously observed. Transportation costs are determined by the distance between two points, weight, size, value, and the volume of trade. Falling transportation costs reduce the volume of international trade by eliminating the basis for the growth of trade. International transportation costs are declining everywhere in the world. Over the past 50 years, transportation costs of U.S. imports have fallen to less than half of what they used to be, relative to the value of imports.

Explanation / Answer

1) The factor price equalization theory states that trade through redirecting demand away from the scarce resource and toward the abundant resource in each nation, it leads to factor price equalization. In each nation trading the cheap resource gets relatively more expensive and expensive respurce becomes relatively less expensive until price equliazation occurs.

Hence first option is correct.

2) Transportation cost have recently become a large expense globally than earlier.

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