According to the factor-endowment theory, international specialization and trade cause a nation's cheap resource to become cheaper and a nation's expensive resource to become more expensive. True or false?

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Business

Conor Lyons

17 September, 15:22

According to the factor-endowment theory, international specialization and trade cause a nation's cheap resource to become cheaper and a nation's expensive resource to become more expensive. True or false?

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Answers (1)

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Alisa Klein · Answer 1

False

Explanation:

Factor endowment policy states that a country would be abundant in a resource which most utilize the factor with which the country is excessively blessed or endowed with.

For example, in producing a particular good, out of all the factors of production, labor is most required. If the country is blessed or endowed with high supply of skilled labor, then the country would eventually turn out to be amongst the top producers of that good.

As per the theory, international specialization and trade would cause a nation's cheap resources (abundant initially) to become expensive and expensive resources (which were scarce earlier) to become cheaper.

Thus, the given statement is false.