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

Question

Quizplus · Accepted Answer

In the specific factors model, an increase in the price of cloth will lead to an increase in wages, but by less than the percentage increase in the price of cloth. This is because labor is mobile and will move towards the cloth sector, increasing its production, while the production of food will decrease due to labor moving away from it.

In the Specific Factors Model,a 0% Increase in the Price