In the specific factors model, a 5% increase in the price of food accompanied by a 5% increase in the price of cloth will cause wages to ________, the production of cloth to ________, and the production of food to ________.
A) increase by more then 5%; increase; remain unchanged
B) increase by 5%; remain unchanged; remain unchanged
C) remain constant; decrease; decrease
D) remain constant; increase; increase
E) increase by less then 5%; decrease; increase

Question

Quizplus · Accepted Answer

In the specific factors model, if both goods' prices increase by the same percentage, wages will increase by that percentage, and the production levels of both goods will remain unchanged because the relative prices and allocation of labor do not change.

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