Chapter 4: Specific Factors and Income Distribution

For trade to take​ place, a country must face a world relative price that is

different from the relative price that would prevail in the absence of trade.

Within each country that opens itself to international​ trade,

some factor owners​ gain, but other factor owners lose.

In each sector of a specific factors​ economy, profit-maximizing employers will demand labor up to the point where

the marginal product of labor times the price of the product equals the wage rate.

The quantity of direct foreign investment by the United States into Mexico has increased dramatically during the last decade. How would you expect this increased quantity of direct foreign investment to affect migration flows from Mexico to the United​ States, all else being​ equal?

Direct foreign investment has increased the amount of capital per worker in Mexico. This will increase the marginal product of labor and increase the real​ wage, which should slow the flow of labor from Mexico.

Which of the following is not a possible explanation for why the relative supply curve for the world might be different from that for a specific factors​ economy? The other countries in the world could have different A. total amounts of land. B. total amounts of available labor. C. technologies. D. levels of relative demand.

levels of relative demand.

Trade has ambiguous effects on

mobile factors.

In​ 1986, the price of oil on world markets dropped sharply. Since the United States is an​ oil-importing country, this was widely regarded as good for the U.S. economy. Yet in Texas and​ Louisiana, 1986 was a year of economic decline.​ Why? In Texas and​ Louisiana, 1986 was a year of economic decline because in these two​ states,

oil production was reduced.

Assume a specific factors economy produces two​ goods, cloth and​ food, and that when representing this economy​ graphically, cloth is on the​ x-axis and food is on the​ y-axis. For a trading​ economy,

the budget constraint is tangent to the production possibility frontier at the chosen production point.