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QUESTION 4 In a Mixed Specific Factors model with two sectors, Cars (C) and Wheat (W),...

QUESTION 4

In a Mixed Specific Factors model with two sectors, Cars (C) and Wheat (W), Capital (K) is specific to C and Land (A) is specific to W. If the government imposes a tariff on the imports of W then

A. Both owners of K and owners of A will benefit.

B. Owners of A will benefit.

C. Owners of K will benefit.

D. Neither owners of K nor owners of A will benefit.

Explain your answer in 200 words and use a diagram

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Answer #1

Option A i,e Both owners of K and owners of A will benefit is correct

Base for the solution:

This is due to the fact that the imposing of tariff on imports of wheat will ensure that the importing of wheat will be reduced substantially especially due to increased costs and hence would lead to more of the disposable income being available at the hands of the individuals which will further help them to be able to purchase the car as well as give a hike in their capital available in hand, which is crucial for an economy trying to make itself directly relational among two products which is basically the assumption of the Mixed Specific factors model with two sectors.

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