Consider an open, trading economy with two sectors: agriculture and production of cars. There are two factors used in the production of both industries: labor, mobile between the industries, land specific to agricultural production and capital specific to the production of cars. Workers spend most of their earnings on cars. Formation of free trade area led the decrease in the prices of both goods by 5%. Which one of these observations will apply? Group of answer choices The labor/capital ratio increases in both sectors in both sectors The manufacturing sector now uses relatively more labor None of the other three options are correct Labor force allocation remains the same

Multiple Choice QuestionWhich of the following exemplifies the concept of "quantities of other resources" as contributing to the marginal product of a particular resource?Multiple choice question.A lesser amount of capital and land resources used with labor will increase labor's marginal productivity and thus labor demand.A greater amount of capital and land resources used with labor will increase labor's marginal productivity and thus labor demand.An unchanging amount of capital and land resources used with labor will eliminate labor's marginal productivity and thus labor demand.A greater amount of capital and land resources used with labor will decrease labor's marginal productivity and thus labor demand.

Multiple Choice QuestionWhich of the following infers the direction of the change in the demand for resource labor due to a change in capital?Multiple choice question.The direction of the change in labor demand will depend on whether labor and capital are solely substitutes in productionThe direction of the change in labor demand will depend on whether labor and capital are solely complements in productionThe direction of the change in labor demand will depend on whether labor and capital are substitutes or complements in productionThe direction of the change in labor demand will depend on whether labor and capital are normal or inferior goods in production

Japan produces electronics and food. Land is a specific input factor in the production of food. Electronics production requires dedicated capital input. Labour can flow freely between the two industries. A new fertilizer drastically improves the productivity of land. We can expect Group of answer choices: which one is correct a. workers experience welfare gain b. the marginal product of capital increases c. labour allocation remains constant d. the amount of capital in Japan decreases

Italy produces agricultural products and manufactured products, using both labour and capital. Manufacturing is capital-intensive while agriculture is labour-intensive. When Italy engages in free trade, it starts exporting manufactured products. In the long run, which one of the following scenarios is correct? Group of answer choices Italy becomes more capital-abundant. Real rental in the manufacturing industry increases more than the real rental in the agricultural industry. Real wage in Italy falls. Allocation of Italian capital between sectors remains unchanged compared to autarky.

The USA produces agricultural products using land and manufactured products using capital. When the USA engages in free trade, it starts exporting manufactured products, (the price of manufactured products in the US increases). In the short run, which one of the following scenarios takes place? Group of answer choices Both nominal and real returns on land increase Nominal return on land decreases while real return on land remains the same Nominal return on capital increases while real return on capital falls Nominal returns on both land and capital increase Both nominal and real returns on land decrease