ABSTRACT
The factor-price equalization theorem is illustrated in Figure 5.7. Here, the overall capital-labour endowment in country I is given by (K/L )1 and in country II by (K/L )1I. Suppose that the international price ratio is indicated by point (p2/pl)* in quadrant II. Associated with this is the wage-rental ratio co* which prevails in both countries. Therefore, factor prices are the same in countries I and II.
