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6.3: Factors of Production
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- How does the abundance or rarity of inputs to production affect the advantage of nations?
- The term “factors of production” is jargon for inputs to the production process.
- Labor is generally considered a fixed or immobile factor because most countries don’t have borders that are wide open to immigration. Temperature, weather, and land are also fixed factors.
- Fixed factors of production give particular regions a comparative advantage in the production of some kinds of goods, and not in others.
- The basic model of international trade, known as the Ricardian theory, suggests that nations, responding to price incentives, will specialize in the production of goods in which they have a comparative advantage, and purchase the goods in which they have a comparative disadvantage.