Suppose that land is specific to agriculture, capital is specific to manufacturing, and labor is mobile between sectors. According to the specific-factors model, if this country begins importing manufactured goods, which factor will experience the highest unemployment?
A) labor
B) capital
C) land
D) No factors will experience unemployment.

Question

Quizplus · Accepted Answer

In the specific-factors model, labor is mobile and can move between sectors, so it will not experience unemployment. Capital and land are specific to their sectors and do not move, but they do not experience unemployment; instead, their returns may change.

Suppose That Land Is Specific to Agriculture, Capital Is Specific