ECS4865
ASSIGNMENT 1 2025
UNIQUE NO.
DUE DATE: 30 MAY 2025
,Question 1: Define specific factor and mobile factor. Explain why factor
specificity is not a permanent condition but is a matter of time.
A specific factor refers to a resource that is limited to use in a particular industry and
cannot be easily employed elsewhere in the short term. For example, land dedicated
solely to farming or equipment designed for textile production cannot be immediately
redirected to other sectors. On the other hand, a mobile factor, such as labour, can
shift between industries based on differences in wages or employment opportunities.
This distinction is crucial in economic models like the Specific Factors Model, which
assumes that some inputs remain fixed within certain sectors in the short run, while
labour is free to move where it is most needed. The short-run immobility of specific
factors explains why some sectors benefit more than others from changes in trade or
policy.
However, this specificity is not permanent. Over time, resources initially tied to one
sector can be redeployed. Machinery may be adapted for different uses, land can be
converted for industrial or urban development, and workers can gain new skills to enter
different fields. Technological progress, changes in government policy, and structural
transformations in the economy can all contribute to increasing the mobility of factors.
As a result, although certain factors may appear immobile at first, long-term economic
adjustments gradually make them more flexible. This ability to adapt is important when
analysing how economies evolve in response to changes such as trade liberalisation or
shifts in demand.
, Question 2: Optimal allocation of labour between clothing and food industries in
the specific factor model (with diagram)
In the specific factor model, labour is the only mobile factor, while capital and land are
specific to the clothing and food sectors, respectively. The optimal allocation of labour
occurs when the wage rate (w*) is equal in both sectors and equals the value of the
marginal product of labour (VMPL). That is:
w∗=PC⋅MPLC=PF⋅MPLF
This condition ensures that there is no incentive for labour to move between sectors, as
the return is equalised. If more labour were allocated to clothing, the marginal
productivity in clothing would decrease due to diminishing returns, while productivity in
food would rise as fewer workers remain. Equilibrium is restored where the two VMPL
curves intersect.
Diagram (label if required in your submission):
X-axis: Total labour (L), divided between LC and LF
Y-axis: Wage (w)
Two downward-sloping VMPL curves (clothing and food)
Intersection point shows LC∗L and LF∗L
This graphical approach demonstrates the efficiency condition and how changes in
product prices shift the VMPL curves, altering equilibrium labour allocation.
Question 3: Effect of cloth price increase on income of capital owners,
landowners, and workers
When the price of cloth increases in the specific factor model, it affects incomes
differently for the three types of factor owners. Firstly, the owners of capital—specific to
the cloth industry—benefit the most. As cloth becomes more expensive, the marginal
ASSIGNMENT 1 2025
UNIQUE NO.
DUE DATE: 30 MAY 2025
,Question 1: Define specific factor and mobile factor. Explain why factor
specificity is not a permanent condition but is a matter of time.
A specific factor refers to a resource that is limited to use in a particular industry and
cannot be easily employed elsewhere in the short term. For example, land dedicated
solely to farming or equipment designed for textile production cannot be immediately
redirected to other sectors. On the other hand, a mobile factor, such as labour, can
shift between industries based on differences in wages or employment opportunities.
This distinction is crucial in economic models like the Specific Factors Model, which
assumes that some inputs remain fixed within certain sectors in the short run, while
labour is free to move where it is most needed. The short-run immobility of specific
factors explains why some sectors benefit more than others from changes in trade or
policy.
However, this specificity is not permanent. Over time, resources initially tied to one
sector can be redeployed. Machinery may be adapted for different uses, land can be
converted for industrial or urban development, and workers can gain new skills to enter
different fields. Technological progress, changes in government policy, and structural
transformations in the economy can all contribute to increasing the mobility of factors.
As a result, although certain factors may appear immobile at first, long-term economic
adjustments gradually make them more flexible. This ability to adapt is important when
analysing how economies evolve in response to changes such as trade liberalisation or
shifts in demand.
, Question 2: Optimal allocation of labour between clothing and food industries in
the specific factor model (with diagram)
In the specific factor model, labour is the only mobile factor, while capital and land are
specific to the clothing and food sectors, respectively. The optimal allocation of labour
occurs when the wage rate (w*) is equal in both sectors and equals the value of the
marginal product of labour (VMPL). That is:
w∗=PC⋅MPLC=PF⋅MPLF
This condition ensures that there is no incentive for labour to move between sectors, as
the return is equalised. If more labour were allocated to clothing, the marginal
productivity in clothing would decrease due to diminishing returns, while productivity in
food would rise as fewer workers remain. Equilibrium is restored where the two VMPL
curves intersect.
Diagram (label if required in your submission):
X-axis: Total labour (L), divided between LC and LF
Y-axis: Wage (w)
Two downward-sloping VMPL curves (clothing and food)
Intersection point shows LC∗L and LF∗L
This graphical approach demonstrates the efficiency condition and how changes in
product prices shift the VMPL curves, altering equilibrium labour allocation.
Question 3: Effect of cloth price increase on income of capital owners,
landowners, and workers
When the price of cloth increases in the specific factor model, it affects incomes
differently for the three types of factor owners. Firstly, the owners of capital—specific to
the cloth industry—benefit the most. As cloth becomes more expensive, the marginal
