If a commodity is classified as "labor-intensive" at one set of relative factor prices but "capital-intensive" at another set of relative factor prices, this situation is known as
A) demand reversal.
B) factor-intensity reversal.
C) balance-of-payments reversal.
D) factor price reversal.

Question

Quizplus · Accepted Answer

This situation is known as factor-intensity reversal, where the relative cost of factors of production (labor and capital) changes, leading to a change in the factor intensity of a commodity. A commodity may require more labor at lower relative wages, making it labor-intensive, but as relative wages of capital rise, it may become more capital-intensive. Thus, the factor intensity of the commodity is reversed. The other options are not relevant to this situation.

If a Commodity Is Classified as "Labor-Intensive" at One Set