What is the basic takeaway of specific factors model of international trade in terms of income distribution? Select one – the most appropriate answer.

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The question asks about the basic takeaway of the specific factors model of international trade in terms of income distribution, and asks you to select the most appropriate single option.
Option 1: 'Owners of land benefit if the price of a good produced in land specific sector rises.' In the specific factors model, land is a factor specific to certain sectors (e.g., agriculture). When the price of a good produced in the land-specific sector rises, the value of the marginal product of land typically increases, benefiting landowners. This aligns with the model’s prediction of sector-specific gains from price changes.
Option 2: 'Owners of capital benefit if the price of a good produced in capital specific sector rises.' Similarly, capital is a sector-specific factor associated with the capital-intensive sector. If the price of the good produced in that sector rises, the return to capital (rents or profits tied to capital) tends to increase, benefiting capital owners. This is a core implication of the model for capital owners in the price-change context.
Option 3: 'All answers are correct.' Given that both landowners gain from higher prices in their land-specific sector and capital owners gain from higher prices in their capital-specific sector, this option could be consistent with the model if no contradictions exist across the statements. The model also typically notes that factors specific to a sector enjoy gains from sector-specific upward price movements, while factors shared across sectors may experience mixed outcomes depending on relative changes.
Option 4: 'Owners of labor may benefit in one sector and be worse-off in another sector.' In the specific factors model, labor is a mobile factor that is not specific to any one sector (it is a composite input). As with many models of income distribution under trade, workers can gain in the sectors that expand and hire more labor, while potentially losing in sectors that contract, leading to heterogeneous outcomes across sectors. This reflects the redistribution aspect of trade that is central to the model: labor can be harmed in some sectors and helped in others, depending on relative price and output changes.
In sum, each of Options 1, 2, and 4 describes a plausible and standard implication of the specific factors model regarding how income distribution responds to price changes in different sector-specific industries. Since these statements are not mutually exclusive and they collectively capture the model’s key ideas, the combined claim that 'All answers are correct' (Option 3) is consistent with the model’s framework and its predictions about sector-specific gains and labor’s mixed outcomes across sectors.

econ_420_120255_249094 Lesson 4 Quiz

What is the basic takeaway of specific factors model of international trade in terms of income distribution? Select one – the most appropriate answer.

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