Consider our standard model of the economy, with two goods (wheat and cloth) and

ID: 1179271 • Letter: C

Question

Consider our standard model of the economy, with two goods (wheat and cloth) and two factors (land and labor). Assume that wheat production is land-intensive. Suppose a decrease now occurs in the relative price of wheat. What are the long run effects on the earnings of labor employed in the wheat industry and labor employed in the cloth industry?

A) The earnings of labor in both industries rise.

B) The earnings of labor in both industries fall.

C) The earnings of labor in the wheat industry falls and the earnings of labor in the cloth industry rise.

D) The earnings of labor in the wheat industry rise and the earnings of labor in the cloth industry fall.

Explanation / Answer

A) The earnings of labor in both industries rise.

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Consider our standard model of the economy, with two goods (wheat and cloth) and

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Explanation / Answer

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