Question

Suppose a country with two types of workers, high skilled and low skilled, has a comparative advantage in biotechnology and a comparative disadvantage in shoes. Under the Stolper-Samuelson theorem, which predicts increasing inequality due to international trade, expansion of trade will result in:

Answer 1

From the comparative advantages, we can analyse that shoes require less skill and biotechnology requires more skills and if the country has comparative advantage in biotechnology, it must be having an abundance of high skilled labor. Then it will trade / produce only biotechnology products. By trading,  Stolper-Samuelson theorem will predict that there will be increasing inequality due to international trade beacause wages of high skilled workers will rise.The product they sell will now be having a higher relative price so the skilled workers will have a wage rate higher in relation to low skill workers.