How would you describe the effects of international trade in terms of income distribution for an individual economy? Select one answer which is the most appropriate according to specific factors model.

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BlackTom AI · Accepted Answer

Let's start by clearly restating the question and each answer option to set the context for analysis.
Question: How would you describe the effects of international trade in terms of income distribution for an individual economy? Select one answer which is the most appropriate according to specific factors model.
Answer options:
1) Factors specific to export sectors are worse-off, factors specific to import-competing sectors are worse-off, mobile factors imply ambiguous effect.
2) Factors specific to export sectors are better-off, factors specific to import-competing sectors are worse-off, non-specific factors may be either better-off or worse-off.
3) Factors specific to export sectors are better-off, factors specific to import-competing sectors are better-off, mobile factors imply ambiguous effect.
4) Factors specific to export sectors are worse-off, factors specific to import-competing sectors are better-off, mobile factors imply ambiguous effect.

Now, evaluate each option one by one:
Option 1: Export-specific factors worse-off and import-competing-specific factors worse-off contradicts the standard intuition of the specific-factors model, where export-sector (often capital or labor tied to exporting) tends to gain from outward-oriented adjustment, while import-competing factors may lose. The claim that all factors become worse-off and that any gains are limited to mobile factors is inconsistent with the model’s typical dispersion of effects. This makes Option 1 unlikely to be correct.
Option 2: This option states export-sector factors are better-off, import-competing-sector factors are worse-off, and non-specific factors may be either better-off or worse-off. This aligns with the core insight of the specific factors model: opening to trade benefits factors tied to exporting (export sectors) and harms those tied to importing (import-competing sectors), while mobile factors (such as land, capital, or labor not tied to a single sector, depending on the country’s specifics) can experience ambiguous outcomes because they can move between sectors. This option coherently captures the typical distribution of gains and losses and the possible role of non-specific factors.
Option 3: This claims both export and import-competing sectors’ factors are better-off, with mobile factors showing ambiguity. While mobility and reallocation can benefit several groups, the standard model usually predicts at least some losers in the import-competing sector when a country opens up to trade, making a universal “both sectors better-off” claim questionable. This makes Option 3 less consistent with the specific-factors framework.
Option 4: This says export-sector factors are worse-off and import-competing-sector factors are better-off, with mobile factors ambiguous. This directly contradicts the common result where export-oriented factors gain from trade, not lose, so this option misrepresents the typical distribution of income effects under the model.

In summary, Option 1 misstates the impact on both export and import components and overemphasizes ambiguity for all factors. Option 3 wrongly posits gains for both sectors, which contradicts the model’s differentiation between exporting and import-competing factors. Option 4 reverses the expected advantages and disadvantages of export versus import-competing sectors. Option 2 is the only option that accurately reflects the standard specific-factors model’s predictions: export-sector factors are better-off, import-competing-sector factors are worse-off, and non-specific factors may be either better-off or worse-off, depending on the movement of mobile resources and the country’s endowments. This makes Option 2 the most appropriate choice according to the model.

econ_420_120255_249094 Lesson 4 Quiz

How would you describe the effects of international trade in terms of income distribution for an individual economy? Select one answer which is the most appropriate according to specific factors model.

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