In the specific factors model, which of the following will increase the quantity of labor used in food production?
A) an increase in the price of cloth relative to that of food
B) an increase in the price of food relative to that of cloth
C) a decrease in the price of labor
D) an equal percentage increase in the price of food and cloth
E) an equal percentage decrease in the price of food and cloth

Question

Quizplus · Accepted Answer

In the specific factors model, an increase in the price of food relative to that of cloth will increase the demand for labor in the food sector and thus increase the quantity of labor used in food production. Factors of production that are specific to the production of one good will move towards that industry when the relative price of that good increases. In this case, labor is specific to the production of food, and so an increase in the price of food relative to cloth will cause labor to move towards the food industry. None of the other choices listed would directly impact the quantity of labor used in food production in the specific factors model.

In the Specific Factors Model, Which of the Following Will