Question

If, relative to its trade partners, Gambinia has many workers but very little land and even\ less productive capital, then, following the specific factor model, we know that Gambinia
has a comparative advantage in

a Relative factor prices will not change

B.	Output of capital-intensive industry will fall

C.	The real rental rate will increase

D.	The real wage will increase

Answer 1

a] Relative factor prices will not change

In specific factor model, the rise in price of commodity will increase marginal product of the labor and also the total revenue of the firms. But it may not necessarily means increase in employment in Food industry which is considered to be essential items. However, a 25% rise in the price of manufacturing items will also significantly raise the revenue of the company. Therefore, in that employment in manufacturing sector may increase under the specific factor model.