When the demand for products competing with imports falls, demand for the specific factors used in their production falls and:
A) the relative prices (earnings) of these specific factors will fall disproportionally.
B) the relative prices (earnings) of these specific factors will rise disproportionally.
C) the relative prices (earnings) of these specific factors will fall by the same rate as for all resources.
D) the employment of these specific factors will rise disproportionally.

Question

Quizplus · Accepted Answer

When demand for products competing with imports falls, the demand for the specific factors used in their production also falls. This leads to a decrease in the relative prices (earnings) of these specific factors. Since there is less demand for these factors, their owners will be forced to accept lower prices for their services. The decrease in relative prices will be disproportionate because these factors are only used in the production of the specific goods that are no longer in demand. Thus, option A is the correct choice.

When the Demand for Products Competing with Imports Falls, Demand