Specific Factors Model

Question 1

What is a specific factor?

Answer 1

It is a factor of production that cannot be used in the production of another good.

Question 2

Are the SF model used to study short or long term effects?

Answer 2

Short, because in the long term all factors could be moved across sectors.

Question 3

What are the assumptions of the SF model?

Answer 3

1. 2 countries, 2 goods, 3 factors (2 of them specific for only one of the sectors) and one of them, labour, is used in both sectors
2. One country has higher labour productivity in one good
3. Technology has constant returns to scale, but there are diminishing returns to labour
4. perfect competition
5. Free labour mobility
6. Full factor utilization

Question 4

When L increases, the MPL in that sector…?

Answer 4

Decreases.

Question 5

The total amount of labour in the country is equal to…?

Answer 5

The sum of labour from both sectors.

Question 6

The SF model autarky equilibrium is defined by?

Answer 6

Relative prices and relative quantities.

Question 7

The equilibrium relative prices and quantities define…?

Answer 7

Amounts of labour in each sector and factor returns.

Question 8

What is the main assumption of the SF model in accordance with PPF?

Answer 8

That the slope is not constant, it changes according to the amount of labour employed in each sector.

Question 9

Does the SF model produce aggregate gains?

Answer 9

Yes it does, in theory economy is better off as a whole, especially if the gains could be distributed.

Question 10

The factor specific industry that produces the good which relative price increases is…?

Answer 10

Better off, it will produce winners.

Question 11

International labor mobility produces these 2 results:…?

Answer 11

1. Equal wages in both home and foreign

2. Increased aggregate production and productivity.

Question 12

What kind of distributional effects does international labor mobility have?

Answer 12

1. Creates winners and losers

2. Creates aggregate gains