The specific-factors model concludes that if there is a decrease in the relative price in (and a contraction of) one industry, the factor specific to that industry:
A) will experience an increase in its marginal product.
B) will experience a decrease in its marginal product.
C) will be transferred to other industries.
D) will have competition as additional units of that specific factor are hired from other industries.

Question

Quizplus · Accepted Answer

According to the specific-factors model, if there is a contraction in one industry, the specific factor (i.e. the factor that is uniquely used in that industry) will experience a decrease in its marginal product as it becomes less in demand and there are fewer employment opportunities in that industry. This is because the specific factor cannot easily be transferred to other industries.

The Specific-Factors Model Concludes That If There Is a Decrease