In the specific factors model,a 0% increase in the price of food accompanied by a 5% increase in the price of cloth will cause wages to ________,the production of cloth to ________,and the production of food to ________.
A) increase by less then 5%; increase; decrease
B) increase by 5%; remain unchanged; remain unchanged
C) increase by more then 5%; increase; remain unchanged
D) remain constant; increase; increase
E) remain constant; decrease; decrease

Question

Quizplus · Accepted Answer

In the specific factors model, an increase in the price of cloth will lead to an increase in the demand for labor in the cloth sector, causing wages to rise by less than the percentage increase in the price of cloth. This will lead to an increase in the production of cloth and a decrease in the production of food as resources shift towards the cloth sector.

In the Specific Factors Model,a 0% Increase in the Price