In the specific factors model, which of the following will increase the quantity of labor used in cloth production?

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BlackTom AI · Accepted Answer

To evaluate how the specific factors model affects labor use in cloth, we need to consider how relative prices influence sectoral employment when capital is sector-specific.
Option A: An equal percentage decrease in the price of food and cloth would not change the relative profitability of the cloth sector compared to food. Since wages adjust to equilibrate, a symmetrical fall in both prices leaves the cloth sector no more attractive relative to food, so labor allocation between sectors remains largely unchanged.
Option B: An increase in the price of cloth relative to that of food makes cloth more profitable relative to food. With capital tied up in each sector (cloth has its own capital), higher cloth prices raise the value of marginal product of labor in the cloth sector, drawing more workers into cloth until the marginal product of labor falls back to the going wage. Thus the quantity of labor used in cloth increases. This is the hallmark implication of the specific factors model when a sector’s output price rises relative to the other sector.
Option C: An equal percentage increase in the price of food and cloth keeps their relative prices steady. Since the relative profitability of cloth versus food doesn’t change, there is no incentive for labor to shift between sectors beyond what movement occurs due to other exogenous factors; overall, the relative allocation of labor remains unchanged.
Option D: A decrease in the price of labor would affect unit costs but does not by itself specify a shift in the relative profitability between sectors. In the specific factors framework, labor is mobile across sectors while capital is immobile; but a pure decline in the wage would alter overall employment, not necessarily increase cloth employment specifically unless it changes relative attractiveness more for cloth than for food. The statement is insufficient to assert that cloth labor increases.
Option E: An increase in the price of food relative to cloth would make food relatively more attractive, drawing labor away from cloth toward food production. Consequently, the quantity of labor used in cloth would decrease, not increase, under this price movement.

In summary, only option B describes a situation—the cloth price rising relative to food—that raises the relative profitability of cloth and causes more labor to be employed in the cloth sector within the specific factors model. The other options either leave relative incentives unchanged or move labor in the opposite direction or do not specify a mechanism that guarantees more cloth labor usage.

SESS0063_24-25 Test your knowledge

In the specific factors model, which of the following will increase the quantity of labor used in cloth production?

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