In the specific factors model,which of the following will increase the quantity of labor used in cloth 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 decrease in the price of food and cloth
E) an equal percentage increase in the price of food and cloth

Question

Quizplus · Accepted Answer

According to the specific factors model, an increase in the price of cloth relative to that of food will lead to an increase in the demand for labor in cloth production. This is because, in the short run, labor is specific to the cloth industry and cannot be easily transferred to the production of other goods. Therefore, an increase in the demand for cloth will increase the demand for labor in the cloth industry.

In the Specific Factors Model,which of the Following Will Increase