The specific Factors Model Assumptions of the model assume that we are dealing with one economy that can produce two goods. manufactures and food There are three factors of production; labor (L), capital(K) and land(T for terrain) Manufactures are produced using capital and labor(but not land) Food is produced using land and labor(but not capital) Labor is therefore a mobile factor that can be used in either sector Land and capital are both specific factors that can be used only in the production of one good Perfect Competition prevails in all markets Copyright C 2003 Pearson Education, Inc Slide 3-4Copyright © 2003 Pearson Education, Inc. Slide 3-4 ▪ Assumptions of the Model • Assume that we are dealing with one economy that can produce two goods, manufactures and food. • There are three factors of production; labor (L), capital (K) and land (T for terrain). • Manufactures are produced using capital and labor (but not land). • Food is produced using land and labor (but not capital). – Labor is therefore a mobile factor that can be used in either sector. – Land and capital are both specific factors that can be used only in the production of one good. • Perfect Competition prevails in all markets. The Specific Factors Model