The difference between temporary factor- price differentials and equilibrium factor- price differentials is that
A) only equilibrium differentials are interesting for policy purposes.
B) the government can only eliminate equilibrium differentials.
C) temporary differentials are affected by supply and demand whereas equilibrium differentials are not.
D) temporary differentials lead to, and are eliminated by, factor mobility whereas equilibrium differentials do not.
E) equilibrium differentials lead to, and are eliminated by, factor mobility whereas temporary differentials do not.

Question

Quizplus · Accepted Answer

Temporary differentials are typically short-term and can be eliminated by the movement of factors like labor and capital, whereas equilibrium differentials are stable and persist even with factor mobility.

The Difference Between Temporary Factor- Price Differentials and Equilibrium Factor-