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 5%; remain unchanged; remain unchanged
B) increase by less then 5%; decrease; increase
C) increase by more then 5%; increase; remain unchanged
D) remain constant; increase; increase
E) remain constant; decrease; decrease

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 production levels will remain unchanged because the relative prices and thus the allocation of labor between sectors remain the same.

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