In the specific factors model,a 5% increase in the price of food accompanied by a 0% increase in the price of cloth will cause wages to _,the production of cloth to _,and the production of food to .
A)remain constant; increase; increase
B)remain constant; decrease; decrease
C)increase by 5%; remain unchanged; remain unchanged
D)increase by less then 5%; decrease; increase
E)increase by more then 5%; increase; remain unchanged

Question

Quizplus · Accepted Answer

In the specific factors model, an increase in the price of food raises the return to the specific factor used in food production, leading to an increase in wages, but by less than the percentage increase in the price of food. This causes resources to shift towards food production, increasing it, while cloth production decreases.

In the Specific Factors Model,a 5% Increase in the Price