Factor Endowments

Assume China and the US engage in trade. The two countries have two goods: Soybeans and Rice. Both are staples of Chinese cuisine although this is not relevant to our example. There are two factor endowments that produce them - fertile fields and wise workers

-Our farming experts suggest that soybeans are more dependent on fertile fields ("fertile fields" is a factor is used more intensely the growing of soybeans.)

-Our farming experts suggest that the rice is more dependent on wise workers ("wise workers" is a factor is used more intensely the growing of rice).

Factor Endowments of the Countries

	China	United States
Fertile Fields	450	150
Wise Workers	500	200

(a) Which good will China likely specialize in under free trade:

(b) In the short term, what will happen to the price of the goods under free trade:

1.Soybeans in the U.S?

(increase or decrease)

2.Rice in the U.S.?

(increase or decrease)

3.Soybeans in China?

(increase or decrease)

4.Rice in China.?

(increase or decrease)

(c) In the long term, what will happen to the price of the inputs under free trade:

1.Fertile fields in the U.S.?

(increase or decrease)

2.Wise workers in the U.S?

(increase or decrease)

3.Fertile fields in China?

(increase or decrease)

4.Wise workers in China?

(increase or decrease)

(d)Which factor input would you rather possess in China based on these price trends?

(fertile fields or wise workers)