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

Question

Quizplus · Accepted Answer

The specific factors model suggests that trade overall increases welfare because it allows countries to specialize in the production of goods for which they have a comparative advantage, leading to efficiency gains. For fixed factors used to produce the exported good, the effects are also positive because these factors become more valuable as demand for the exported good increases.

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