The diagram to the right depicts pre-trade equilibria in Uplandia (point 1) and

Question

The diagram to the right depicts pre-trade equilibria in Uplandia (point 1) and Downlandia (point 3). RD represents the relative demand for coal in each country, while the respective relative coal supply curves are Rs for Uplandia and RS or Downlandia. Determination of a World Relative Price Relative pric of coal, PcPs RS Assuming that sugar is land-intensive and coal is laborintensive, it must be true, given that RS is to the right of RStthat Downlandia is the-abundant country Knowing that trade between these countries will result in a world relative coal price between the pretrade prices, it will also happen that RS O A. workers in Uplandia and landowners in Downlandia are made better off. O B. workers in Downlandia and landowners in Uplandia are made better off. O C. workers in both countries are made worse off. RD D. both workers and landowners in Uplandia are made better off. Relative quantityoc+ac of coal,

Explanation / Answer

In Downlandia, relative price of coal is higher which means coal will be imported if free trade occur. And we know a country export in which it uses it intensive factor.

Thus Coal is imported which means Downlondia import labor intensive good which makes Downlondia as capital intensive or capital abundant country

When country trades, relatively abundant factor benefits and scarecrow factor becomes worse

Thus in Downlondia Capital or landowner becomes better off and worker in Uplandia gets better off.

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