In the specific factors model,a 5% increase in the price of food accompanied by a 1% increase in the price of cloth will cause ________ in the welfare of labor,________ in the welfare of the fixed factor in the production of food,and ________ in the welfare of the fixed factor in the production of cloth.
A) an ambiguous change; an increase; a decrease
B) an ambiguous change; a decrease; an increase
C) an ambiguous change; an ambiguous change; an ambiguous change
D) a decrease; an ambiguous change; an ambiguous change
E) an increase; a decrease; an increase

Question

Quizplus · Accepted Answer

In the specific factors model, labor is mobile and its welfare change is ambiguous due to differing price changes in goods. The fixed factor in food benefits from the price increase, while the fixed factor in cloth is worse off due to the smaller price increase.

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