After trade opens, the short-run impact on the income of the specific factor used to produce exports will be:
A) a decrease.
B) an increase.
C) indeterminate, income effects are not known.
D) zero.
E) only relevant to labor.

Question

Quizplus · Accepted Answer

In the short run, opening up to trade typically leads to an increase in demand for the country's exports. The specific factor used in the production of these exports will see an increase in its income due to higher demand and possibly higher prices for the goods it helps produce. This is based on the specific factors model in international trade theory, which suggests that factors specific to export sectors benefit from trade liberalization.

After Trade Opens, the Short-Run Impact on the Income of the Specific