Factors of Production in Trade Models

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What is the implication of having diminishing marginal returns in the specific factors model on the Production Possibility Frontier (PPF)?

The PPF will be a straight line with constant opportunity cost.

The PPF will be a curved line with increasing opportunity cost. (correct)

The PPF will shift inward due to diminishing returns.

The PPF will shift outward due to increased productivity.

In the Ricardian model, why were the Production Possibility Frontiers (PPFs) straight lines?

Due to specialization reaching its limits.

Due to an increasing Marginal Product of Labor (MPL).

Due to constant Marginal Product of Labor (MPL). (correct)

Due to limited workspace in production.

What must be true for workers to be indifferent between working for two sectors?

Real wage rates are equalized across sectors. (correct)

There is a significant wage gap between the sectors.

Workers have unlimited job opportunities.

Workers are specialized in only one sector.

How does an increase in the relative price of cloth affect the returns to labor?

Increase due to higher demand for labor in the cloth sector. Signup and view all the answers

What determines consumption patterns in the autarky equilibrium model?

Individual preferences and budget constraints. Signup and view all the answers

What does the slope of the Production Possibility Frontier (PPF) indicate in the specific factors model?

Opportunity cost of one good in terms of the other. Signup and view all the answers

Why does the cloth wage increase proportionally smaller than the price increase when relative price of cloth increases?

As more labor shifts, marginal productivity per unit decreases. Signup and view all the answers

What is a key factor that leads to income inequality in different sectors according to the text?

'Demand' for specific factors by different sectors. Signup and view all the answers

What happens to the Production Possibility Frontier (PPF) in the specific factors model due to diminishing marginal returns?

'Curves' with increasing opportunity cost. Signup and view all the answers

In the Specific Factors Model, which factors are specific to their industries in the short run?

Capital and land Signup and view all the answers

What does the Ricardian Model lack, leading to a different outcome compared to models with multiple factors?

Multiple factors Signup and view all the answers

Which model is considered the short-run version of the Heckscher-Ohlin model?

Specific Factors Model Signup and view all the answers

What type of competition is assumed in the Specific Factors Model?

Perfect competition Signup and view all the answers

Which factor is NOT easily movable between sectors in the short run in the Specific Factors Model?

Land Signup and view all the answers

What are the two goods considered in the Specific Factors Model?

Cloth and food Signup and view all the answers

Which factor of production is specific to the manufacturing sector in the Specific Factors Model?

Capital Signup and view all the answers

What do diminishing marginal returns imply about the production of goods?

-Decreasing efficiency Signup and view all the answers

What kind of products use both labor and land as factors of production in the Specific Factors Model?

Both food and cloth Signup and view all the answers

What does the diminishing marginal product of labor indicate in production?

Diminished returns as more workers are added Signup and view all the answers

In the specific factors model, what is the effect on workers' purchasing power when there is a relative price change?

Overall effect is ambiguous Signup and view all the answers

What is the impact on landowners' purchasing power when there is a relative price change in the specific factors model?

Overall effect is bad Signup and view all the answers

How does a relative price change affect the purchasing power of capital owners in the specific factors model?

No effect on purchasing power Signup and view all the answers

What happens to workers' well-being in terms of purchasing power when there is a relative price increase?

Depends on their preferences Signup and view all the answers

How does trade affect factor incomes based on the specific factors model?

Predictable changes in incomes for each factor due to trade Signup and view all the answers

Which factor benefits from trade in the specific factors model?

Factor specific to the export good Signup and view all the answers

What is a key difference between the specific factors model and Ricardo's theory of comparative advantage?

'Winners and losers' concept exists in both models Signup and view all the answers

What would be the result if all factors were mobile according to the text?

'Specific factors model' would lose its relevance Signup and view all the answers

How does trade impact owners of the factor specific to the import good in the specific factors model?

'Import good owners' benefit, while 'export good owners' are hurt Signup and view all the answers

What characteristic limits full specialization in a particular good within a country or sector according to the specific factors model?

Complete mobility of factors Signup and view all the answers