A temporary factor- price differential is one which
A)derives from intrinsic differences in the factors themselves.
B)is seldom self- eliminating.
C)will tend to be eliminated in the long run.
D)will hamper the reallocation of resources from declining to growing industries.
E)will reflect a permanent state of disequilibrium.

Question

Quizplus · Accepted Answer

A temporary factor-price differential is one which will tend to be eliminated in the long run. This means that there is a temporary difference in the price of factors of production (such as labor or capital) between different industries, but this difference is expected to disappear over time. As markets adjust and potential profits attract investment and resources, the factor prices will either rise in the industries where they are lower or fall in the industries where they are higher, closing the gap between them. Therefore, the price differential is not intrinsic to the factors themselves, nor is it a permanent state of disequilibrium that would hinder the reallocation of resources. However, it may not self-eliminate immediately, as it takes time for markets to adjust and for investment and production decisions to be made.

A Temporary Factor- Price Differential Is One Which