For factor reversal to occur,two commodities must be produced with:
A)sufficiently different elasticity of substitution of factors
B)the same K/L ratio
C)technologically-fixed factor proportions
D)equal elasticity of substitution of factors

Question

Quizplus · Accepted Answer

Factor reversal occurs when there is a shift in the relative factor prices causing production to shift from one commodity to another. This shift can only occur if the two commodities have sufficiently different elasticities of substitution of factors. If the two commodities have the same elasticity of substitution, then the shift in factor prices would not cause a change in production. Similarly, if the commodities have technologically-fixed factor proportions or the same K/L ratio, then factor reversal would not occur.

For Factor Reversal to Occur,two Commodities Must Be Produced With