The Difference Between Temporary Factor-Price Differentials and Equilibrium Factor-Price Differentials

question 86

Multiple Choice

The difference between temporary factor-price differentials and equilibrium factor-price differentials is that

• A)equilibrium differentials are affected by shifts in demand and supply whereas temporary differentials are not.
• B)equilibrium differentials lead to,and are eliminated by,factor mobility whereas temporary differentials do not.
• C)the government can only eliminate equilibrium differentials.
• D)temporary differentials lead to,and are eliminated by,factor mobility whereas equilibrium differentials do not.
• E)only equilibrium differentials are interesting for policy purposes.

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Definitions:

EBIT

Stands for Earnings Before Interest and Taxes, a financial indicator that calculates a firm's profit excluding interest and income tax expenses.

Cost of Capital

A company's expense of funding its operations either through debt, equity, or a combination, representing the return rate investors expect.

Tax Rate

The level at which a person or business's income is subjected to taxation.

Bonds at Par Value

Bonds that are sold or traded at their original issuing price or face value.