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-Neither Manufactures nor Food
b-Manufactures
c-Food
d-Both Manufactures and Food
Solution:
B]
Manufactures
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.
Correct answer is Employment increases in manufacturing
industry.
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