International trade leads to complete equalization of factor ...

[ETearle]

International trade leads to complete equalization of factor prices. Discuss.
 
  What will be an ideal response?

Question 2

Who are the main actors in the international capital market?
 
  What will be an ideal response?

Question 3

Refute the claim by mercantilists who claimed that without severe restrictions on international trade and payments, a country might find itself impoverished and without an adequate supply of circulating monetary gold as a result of balance of
 
  payments deficits.

[matt95]

Answer to Question 1

This statement is typically true . . . but. Under a strict and limited set of assumptions, such as the original Heckscher-Ohlin model which excludes country specific technologies; non-homothetic tastes; factor intensity reversals; large country differences in (relative) factor abundances, more factors than goods, and an equilibrium solution within the cone of specialization; then it may be demonstrated that internal consistency demands that the above stated sentence is true. However, the minute one relaxes any of the above listed assumptions one may easily identify solutions, which contradict the factor price equalization theorem.

Answer to Question 2

(1 ) Commercial banks
(2 ) Corporations
(3 ) Non-bank financial institutions, such as insurance companies, pension funds, and mutual funds. This includes investment banks, which specialize in underwriting sales of stocks and bonds by corporations and in some cases governments.
(4 ) Central banks and other government agencies

Answer to Question 3

The balance of payments would automatically regulate itself to ensure an adequate supply of money in every country.

[ETearle]

Thank you

[matt95]

Happy to help you