In the short run (specificfactors) model FDI in the a
Country's manufacturing sector will cause its
Production possibility frontier:
A)to shift outward for both sectors.
B)to shift inward.
C)to shift outward for manufacturing only.
D)to stay the same.

Question

In the short run (specific­factors) model FDI in the a
Country's manufacturing sector will cause its
Production possibility frontier:
A)to shift outward for both sectors.
B)to shift inward.
C)to shift outward for manufacturing only.
D)to stay the same.

Quizplus · Accepted Answer

The specific-factors model assumes that one factor of production is fixed in the short run, while the others are variable. FDI in the manufacturing sector will increase the demand for the specific factor used in that sector, causing its price to rise. This will lead to a decrease in the supply of the specific factor used in the other sector, causing its price to rise as well. As a result, the production possibility frontier will shift outward for the manufacturing sector only, as it is the only sector experiencing an increase in productivity.

In the Short Run (Specific­factors) Model FDI in the a

In the Short Run (Specificfactors) Model FDI in the a