Suppose that a toxic waste spill renders half of the land in New Jersey uninhabitable. Assuming that land and labor are complements in the production function, what would happen to the wages earned by workers and rents earned by landowners?
A)Both wages and rents would increase.
B)Both wages and rents would decrease.
C)Wages would increase, and rents would decrease.
D)Wages would decrease, and rents would increase.

Question

Quizplus · Accepted Answer

Since land and labor are complements in the production function, a decrease in the availability of land would reduce the productivity of labor, leading to a decrease in wages earned by workers. However, since the supply of land has decreased, rents earned by landowners would increase as the demand for the remaining land would be higher. Therefore, wages would decrease, and rents would increase.

Suppose That a Toxic Waste Spill Renders Half of the Land