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b) If country X is a relatively land-abundant country, what will happen with the price of...

b)

If country X is a relatively land-abundant country, what will happen with the price of bread after opening up offree trade? What will happen with the input prices? Explain

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Answer #1

If country x is a relatively land abundant country, then according to the Hecksher-ohlin model, after opening up of free trade, domestic price of bread will increase because bread is relatively land intensive.

But according to factor price equalization theorem, land rent in country X will fall and it will increase in it's trading partner country which is relatively land scarce. It will happen untill both countries' land rents equalize. So, opening up of trade reduces country X's input price.

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