GMS 724 Study Guide - Midterm Guide: Factors Of Production, Bracero Program

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The relationship between trade and factor mobility: part 3. Substitution: when the factor proportions vary widely among countries, pressures exist for the most abundant factors to move to countries with greater scarcity, where they command a better return. In countries where labour is more abundant than capital, labourers tend to be unemployed or poorly paid. If neither tomatoes nor production factors can move between the two countries, the cost of tomatoes produced in mexico for the mexican market is sh. 75 per bushel (sh. 25 of labour plus sh. 50 of capital), whereas those produced in the. United states for the u. s market cost . 55 per bushel (. 25 of labour plus. If the two countries eliminate trade restrictions on tomatoes between them, the u. s. will import from mexico because the mexican cost of sh. 75 per bushel plus sh. 75 for transporting the tomatoes will be sh. 05 less than. United states---say, sh. 40 per bushel, which is less than the mexican going rate.