Specific factors model

Question 1

State the assumptions of the model

Answer 1

1

Question 2

Give a brief story of the specific factors model and what it is used to explain.

Answer 2

1

Question 3

Draw a visual representaion of the model to and explain how a change in relative prices might affect the other factors.

Answer 3

1

Question 4

Mathematically derive the slope of the production function frontier.

Answer 4

1

Question 5

Give a visual description to explain how wages and labour supply for each good are managed.

Answer 5

1

Question 6

Used the visual representation shown before to tell a story about capital and land returns in such an economy.

Answer 6

1

Question 7

Describe using the model and the visual cues what would happen to wages, labor supply and fixed factor’s returns in the different sectors of home’s economy if prices were to change when an economy opens up to trade.

Answer 7

1

Question 8

Give a summary of the conclusion of the model.

Answer 8

Trade benefits the factor specific to the export sector of each country but hurts the factor specific to the import competing sectors, with ambiguous effects on mobile factors.

Question 9

Given a visual representation, explain why trade is beneficial, given the specific factors model. How are wages and returns on fixed factors affected in home and foreign’s economies?

Answer 9

1

Question 10

Explain why, given a 7% rise in the price of one of the two goods, le wage rate rises by less than 7%

Answer 10

Because the rise in the price of cloth causes a rise in the demand for labor in that specific industry, thus reducing the marginal productivity of labor.