In the specific factors model, the effects of trade on welfare are ________ for mobile factors, ________ for fixed factors used to produce the exported good, and ________ for fixed factors used to produce the imported good.
A) ambiguous; positive; negative
B) positive; positive; positive
C) ambiguous; negative; positive
D) positive; ambiguous; ambiguous
E) negative; ambiguous; ambiguous

Question

Quizplus · Accepted Answer

In the specific factors model, the effects of trade on welfare are ambiguous for mobile factors because they can move between industries and their welfare impact depends on the overall balance of trade effects. For fixed factors used to produce the exported good, the effect is positive because increased demand for exports raises the returns to these factors. Conversely, for fixed factors used to produce the imported good, the effect is negative due to decreased demand for the domestically produced version of the imported good, which lowers the returns to these factors.

In the Specific Factors Model, the Effects of Trade on Welfare