Suppose that a large lake in the middle of Minnesota evaporates, leaving more fertile farm land for growing corn available. Assuming that land and labor are complements in a farming 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

When a large lake in the middle of Minnesota evaporates, leaving more fertile farmland for growing corn, the supply of land increases. This leads to a decrease in the price of land, which in turn decreases rents earned by landowners. As land and labor are complements in a farming production function, the increase in the supply of land increases the demand for labor, and hence wages earned by workers would increase. Therefore, wages would increase, and rents would decrease.

Suppose That a Large Lake in the Middle of Minnesota