Factors of Production in Trade Models
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Questions and Answers

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?

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

    What determines consumption patterns in the autarky equilibrium model?

    <p>Individual preferences and budget constraints.</p> Signup and view all the answers

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

    <p>Opportunity cost of one good in terms of the other.</p> Signup and view all the answers

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

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

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

    <p>'Demand' for specific factors by different sectors.</p> Signup and view all the answers

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

    <p>'Curves' with increasing opportunity cost.</p> Signup and view all the answers

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

    <p>Capital and land</p> Signup and view all the answers

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

    <p>Multiple factors</p> Signup and view all the answers

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

    <p>Specific Factors Model</p> Signup and view all the answers

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

    <p>Perfect competition</p> Signup and view all the answers

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

    <p>Land</p> Signup and view all the answers

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

    <p>Cloth and food</p> Signup and view all the answers

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

    <p>Capital</p> Signup and view all the answers

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

    <p>-Decreasing efficiency</p> Signup and view all the answers

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

    <p>Both food and cloth</p> Signup and view all the answers

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

    <p>Diminished returns as more workers are added</p> 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?

    <p>Overall effect is ambiguous</p> 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?

    <p>Overall effect is bad</p> Signup and view all the answers

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

    <p>No effect on purchasing power</p> Signup and view all the answers

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

    <p>Depends on their preferences</p> Signup and view all the answers

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

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

    Which factor benefits from trade in the specific factors model?

    <p>Factor specific to the export good</p> Signup and view all the answers

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

    <p>'Winners and losers' concept exists in both models</p> Signup and view all the answers

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

    <p>'Specific factors model' would lose its relevance</p> Signup and view all the answers

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

    <p>'Import good owners' benefit, while 'export good owners' are hurt</p> 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?

    <p>Complete mobility of factors</p> Signup and view all the answers

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