Will the price definition of factor abundance produce the same conclusion as the physical definition of factor abundance in the presence of demand reversal? Why or why not?

Question

Quizplus · Accepted Answer

The Answer is The price definition of factor abundance may not produce the same conclusion as the physical definition of factor abundance in the presence of demand reversal. This is because the price definition of factor abundance is based on the relative prices of factors of production, while the physical definition is based on the actual quantities of factors available.

In the presence of demand reversal, the relative prices of factors may not accurately reflect their physical abundance. For example, if there is a sudden increase in demand for a particular factor, its price may rise even if its physical abundance has not changed. This could lead to a situation where the price definition of factor abundance indicates scarcity, while the physical definition indicates abundance.

In such cases, the price definition of factor abundance may not accurately reflect the true availability of factors of production. This is why it is important to consider both the price and physical definitions of factor abundance, especially in the presence of demand reversal, in order to make informed decisions about resource allocation and production.

Will the Price Definition of Factor Abundance Produce the Same