What does the specific factors model predict

Reference no: EM133275991

Question - Specific Factors Model Zimbabwe produces both food (F) and diamonds (D), where food production relies on land (T) and labor (L). Diamond production requires only labor (L) and capital (K). Assume land cannot be used in diamond production and capital cannot be used in food production. Labor, however, is perfectly mobile between the two industries.

a. Illustrate the marginal product of labor for both industries on the same graph, and show the wage and quantity of labor used in both industries.

b. Suppose that the price of diamonds on the world market is higher than the autarky price of diamonds in Zimbabwe, and further suppose that the price of food is the same in autarky as it is in free trade. Show using your graph in part a how Zimbabwe's moving from autarky to free trade affects the value of the marginal product of labor and thus the allocation of labor across sectors.

c. Explain how the movement to free trade affects the returns to capital and the returns to land in Zimbabwe.

d. In general, what does the specific factors model predict about which factors will favor free trade, and which factors will oppose free trade?

Reference no: EM133275991

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