In the specific factors model,a 5% increase in the price of food accompanied by a 0% increase in the price of cloth will cause wages to ________,the production of cloth to ________,and the production of food to ________.
A) increase by less then 5%; decrease; increase
B) increase by 5%; remain unchanged; remain unchanged
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, a 5% increase in the price of food will increase the demand for labor in the food industry, causing wages to increase by less than 5%. At the same time, the increase in the price of food will cause a decrease in the demand for cloth as consumers switch to cheaper food alternatives, resulting in a decrease in the production of cloth. Since the production of food is still profitable with the increased price, there will be an increase in the production of food.

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