Two countries, Spain and Portugal, use two inputs, capital andlabor, to produce two goods, wine and cheese. Wine is relativelycapital intensive in production and Spain is the relatively capitalabundant country.
5) According to the Rybczynski Theorem, if Portugal were a smallcountry with a free trade policy, growth of the labor force wouldcause:
Question 5 options:
| wages to fall, and the reward to capital to increase inPortugal. |
| expansion of the cheese industry and contraction of the wineindustry in Portugal. |
| expansion of the wine industry and contraction of the cheeseindustry in Portugal. |
| expansion of the cheese industry and expansion of the wineindustry in Portugal. |
| contraction of both the wine and cheese industries inPortugal. |
