Question

1-In specific factors model what would happen to the earnings of the specific factors of production i.e. capital and land which cannot switch between industries?

2- what are the differences between absolute advantage and comparative advantage and which one of them is the foundation of international trade ?

Answer 1

There are 4 factor of production land labour capita nd entrepreneur.. Land (rent), labour (wages) capital (interest) entrepreneurs(profit)

Specific factor model meansThe specific factor model assumes that an economy produces two goods using two factors of production, in any of 4 factor in this land and capital is used for producing goods.. One of the twofactors of production, capital, is  specific to a particular industry. Because it is completely immobile.

Earning through specific factor model land and capital

1)land :land is first factor of production from which income earned by owner in form of Rent. Land include any natural resources used to produce good and service. This not include land but anything that comes from land such as oil, water, mineral etc called land resource... Through land income earned in form of Rent

2 Capital :capital is third form of factor of production through which owner earned income on form of interest. capital as the machinery, tools and buildings humans use to produce goods and services examples of capital include hammers,computers, and delivery vans. Capital differs based on the worker and the type of work being done. For example Your teacher may use textbooks, desks, and a whiteboard to produce education services called capital income.. Through Capital owner earned income on form of interest

These are 2 factor of production in which capital is specific.

2)

For example country X produce 50,000 laptops for $1,000 each, and country Y produce 20,000 laptops for $500 each. Then country X has the absolute advantage because it can produce more laptop , but county Y has the comparative advantage because it can produce a laptops at less cost.

Comparative adv is foundation of International trade Beacause trading is beneficial between two countries and comparative adv is ability to produce goods at lower opportunities cost