Question
Consider a Specific Factors Model. Suppose that the home country produces only two goods, food and cloth. Labor is the mobile factor of production, that
Consider a Specific Factors Model. Suppose that the home country produces only two goods, food and cloth. Labor is the mobile factor of production, that can move freely between the two sectors at Home. Land is a factor of production that is specific to food production, and capital is a factor of production that is specific to cloth production. Consider the situation described in (c). Using two separate graphs for the cloth and the food sector, show clearly how the real income of capitalists and landowners are affected by the 10% fall in cloth prices, ceteris paribus.
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