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 to the decrease in the price of cars by 5%. Which one of these observations will apply? Group of answer choicesThe labor/capital ratio increases in both sectorsNone of the other three options are correctLabor force allocation remains the sameThe car sector now uses relatively more labor

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.

Suppose Italian workers can produce 4 cars per year and German workers can produce 8 cars per year. Suppose Italian workers can produce 5 tons of garments per year and German workers can produce 6 tons of garments per year. Trade between Italy and Germany would lead to?Group of answer choicesEmployment gains in Italian car manufacturingExports of cars from Germany to ItalyLower relative price of cars in GermanyLower relative price of garments in Italy

Which of the following scenarios would likely shift the supply of cars to the left (decrease in supply)?multiple choiceAutomobile workers become more productive.The price of automotive paint decreases.The price of steel and aluminum increase.The price of cars decreases.

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