The following input-requirements data are for country A, a capital-abundant country where they produce nothing but bread and wine using only capital and labor as inputs. $$\begin{array} { | c | c | c | }
\hline & 1 \text { pound of bread } & \text { 1 gallon of wine } \
\hline \text { Capital input } & 5 \text { units } & 20 \text { units } \
\hline \text { Labor input } & 4 \text { units } & 10 \text { units } \
\hline
\end{array}$$ In the long run, which of the following can most reasonably be inferred after this country engages in free trade?
A)The wage rates will decline but the returns to capital will increase.
B)The returns to capital will decline but the wage rates will increase.
C)The wage rates will decline in the wine industry and will increase in the bread industry.
D)The returns to capital will fall in the wine industry and will rise in the bread industry.

Question

The following input-requirements data are for country A, a capital-abundant country where they produce nothing but bread and wine using only capital and labor as inputs. $$\begin{array} { | c | c | c | } 
\hline & 1 \text { pound of bread } & \text { 1 gallon of wine } \
\hline \text { Capital input } & 5 \text { units } & 20 \text { units } \
\hline \text { Labor input } & 4 \text { units } & 10 \text { units } \
\hline
\end{array}$$ In the long run, which of the following can most reasonably be inferred after this country engages in free trade?
A)The wage rates will decline but the returns to capital will increase.
B)The returns to capital will decline but the wage rates will increase.
C)The wage rates will decline in the wine industry and will increase in the bread industry.
D)The returns to capital will fall in the wine industry and will rise in the bread industry.

Quizplus · Accepted Answer

Given that country A is capital-abundant and produces bread and wine, with wine requiring significantly more capital than bread, engaging in free trade will likely lead to specialization in wine production. This specialization increases the demand for capital, raising its returns, while potentially reducing the demand for labor, leading to lower wage rates.

The Following Input-Requirements Data Are for Country A, a Capital-Abundant