Question 1

In the two-sector (manufacturing and agriculture) specific-factors model, suppose that the home country has a comparative advantage in agricultural output. What will happen to the amount of capital used in manufacturing production when trade occurs?

Accepted Answer

The answer of In the two-sector (manufacturing and agriculture) specific-factors...

Question 2

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufacturing output. What will happen to the amount of land used in producing agricultural output when trade occurs?

Accepted Answer

The answer of Suppose that the home country in the...

Question 3

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufacturing output. What will happen to the return (rental) on capital when trade occurs?

Accepted Answer

In the specific-factors model, when a country has a comparative advantage in a particular sector (in this case, manufacturing) and begins to trade, resources will shift towards that sector to capitalize on the comparative advantage. Since capital is a specific factor used more intensively in the manufacturing sector, the demand for capital in that sector will increase, leading to an increase in the return (rental) on capital.

Question 4

In the two-sector (manufacturing and agriculture) specific-factors model, an increase in the price of manufactured goods will cause a(n):

Accepted Answer

In the specific-factors model, an increase in the price of manufactured goods increases the demand for capital in the manufacturing sector, which is a specific factor in this sector. This leads to an increase in the real rental rate of capital.

Question 5

As a general rule, the return to (or rental price of) a specific factor used in a product tends to:

Accepted Answer

When a product is exported, the demand for that product increases on the global market. This increased demand leads to an increase in the production of the product, which in turn raises the demand for the specific factors used in its production. As a result, the return to or rental price of these factors tends to rise disproportionally.

Question 6

The specific-factors model concludes that if there is an increase in the relative price (and an expansion) of one industry, the factor specific to that industry:

Accepted Answer

In the specific-factors model, an increase in the relative price of a good leads to an increase in the demand for the specific factor used in its production, raising its marginal product.

Question 7

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in agricultural output. What will happen to the return (rental) on land when trade occurs?

Accepted Answer

In the two-sector specific-factors model, when a country has a comparative advantage in a particular sector (in this case, agriculture) and begins to trade, the return to the factor specific to that sector (land, in the case of agriculture) will increase due to higher demand for agricultural products.

Question 8

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufacturing output. What will happen to the return (rental) on land when trade occurs?

Accepted Answer

In the two-sector specific-factors model, trade leads to an increase in the production and exports of the sector in which the country has a comparative advantage (in this case, manufacturing). This, in turn, leads to an increase in the demand for the specific factors used in that sector (e.g. labor and capital), and a decrease in the demand for the specific factors used in the other sector (agriculture). As a result, the rental return on land, which is a specific factor used in agriculture, will fall.

Question 9

Under the 2009 jobs stimulus bill signed by President Obama, which workers can apply for aid after losing their jobs because of import competition?

Accepted Answer

Under the 2009 jobs stimulus bill signed by President Obama, both service sector workers and manufacturing sector workers can apply for aid after losing their jobs due to import competition. This expansion recognized the impact of global trade on a broader segment of the American workforce.

Question 10

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. What will happen to the marginal product of capital used in manufacturing production when trade occurs?

Accepted Answer

When trade occurs, the home country will specialize more in the production of goods for which it has a comparative advantage, in this case, manufactured output. This leads to an increase in the demand for capital in the manufacturing sector, raising the marginal product of capital used in manufacturing production.

Question 11

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. What will happen to the amount of capital used in manufacturing production when trade occurs?

Accepted Answer

The answer of Suppose that the home country in the...

Question 12

Some economists believe that an extended safety net for workers affected by trade:

Accepted Answer

Providing an extended safety net for workers affected by trade would create a more favorable attitude toward trade by workers because they would be less likely to see trade as a threat to their job security. This could help to alleviate concerns about the negative impacts of trade and reduce opposition to free trade agreements.

Question 13

In the two-sector (manufacturing and agriculture) specific-factors model, suppose that the home country has a comparative advantage in manufacturing output. Why does the return to capital change after trade occurs?

Accepted Answer

The return to capital changes after trade occurs because the manufacturing sector, which has a comparative advantage, attracts more labor, increasing the labor-to-capital ratio and thus the marginal productivity of capital.

Question 14

The two-sector (manufacturing and agriculture) specific-factors model assumes that in each industry there are factors of production that are:

Accepted Answer

The two-sector specific-factors model assumes that some factors of production are specific to each sector (for example, land is specific to agriculture, while capital and skilled labor are specific to manufacturing) and that these factors are fixed or immobile in the short run. This means that they cannot be easily transferred between industries if there is a change in relative prices, creating winners and losers among different groups of factors and leading to income redistribution.

Question 15

Trade Adjustment Assistance provides:

Accepted Answer

Trade Adjustment Assistance provides extra income to those formerly employed in import-competing industries who have lost their jobs due to foreign competition. The program helps them with job search and relocation expenses, as well as provides training and education for new career opportunities.

Question 16

As a general rule, when there are specific factors, owners of factors specific to the importing industry are ______________, whereas the mobile factor owners (such as labor) in that industry are ______________.

Accepted Answer

Owners of factors specific to the importing industry are harmed because the industry faces competition from imports, reducing demand for its specific factors. Mobile factor owners, like labor, may be either benefited or harmed depending on their ability to move to other industries and their consumption patterns.

Question 17

Suppose that the home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in agricultural output. What will happen to the return (rental) on capital when trade occurs?

Accepted Answer

In the two-sector specific-factors model, when the home country has a comparative advantage in agricultural output, after trade, the home country will export agricultural goods and import manufactured goods. This will increase the demand for agricultural production, and therefore increase the return on land and labor used in agriculture. However, the demand for capital in agriculture will decrease as a result of the shift towards more labor-intensive production, which will lead to a decrease in the return on capital in agriculture. Since the manufacturing sector is capital-intensive, the demand for capital in manufacturing will increase, leading to an increase in the return on capital in the manufacturing sector. Overall, the net effect will be a fall in the return on capital in the economy as a whole.

Question 18

In the specific-factors model, suppose that a country has a comparative advantage in manufacturing output. Will landowners be better or worse off following the opening of trade with other countries?

Accepted Answer

In the specific-factors model, a country with a comparative advantage in manufacturing output leads to an increase in demand for capital and labor in the manufacturing sector. This causes a decrease in demand for land in the agricultural sector, leading to a decrease in the rental price of land. Therefore, landowners will be worse off following the opening of trade.

Question 19

As a general rule, when there are specific factors, owners of factors specific to the importing industry are ______________, whereas owners of factors specific to export industries are ______________.

Accepted Answer

When a country imports goods, it becomes cheaper for domestic consumers, but it harms the owners of factors specific to the importing industry, as there is increased competition from foreign producers. On the other hand, when a country exports goods, it benefits the owners of factors specific to the export industries, as they receive higher demand for their products from foreign countries.

Question 20

The specific-factors model concludes that if there is a decrease in the relative price in (and a contraction of) one industry, the factor specific to that industry:

Accepted Answer

According to the specific-factors model, if there is a contraction in one industry, the specific factor (i.e. the factor that is uniquely used in that industry) will experience a decrease in its marginal product as it becomes less in demand and there are fewer employment opportunities in that industry. This is because the specific factor cannot easily be transferred to other industries.

Quiz 3: Gains and Losses From Trade in the Specific-Factors Model