A _______________ occurs when the relative prices of labor and capital change over time, which changes the relative mix of capital and labor in the production process of a commodity from being capital intensive to labor intensive (or vice versa)
A) factor-intensity reversal
B) demand bias for capital-intensive
C) factor-intensity trade barriers
D) none of the above

Question

Quizplus · Accepted Answer

A factor-intensity reversal occurs when there is a change in the relative prices of labor and capital, leading to a change in the relative mix of capital and labor in production. This can result in a shift from a capital-intensive production process to a labor-intensive one or vice versa. B is incorrect because it refers to a bias for capital-intensive goods in demand, not a change in relative prices. C is incorrect because factor-intensity trade barriers refer to impediments to trade that affect the relative mix of capital and labor used in production, not a change in relative prices. D is incorrect because A is the correct answer.

A _______________ Occurs When the Relative Prices of Labor and Capital