Answer questions on the basis of the following diagram. Assume all migration is costless.

-If wages are initially $10 in country X and $25 in country Y,then we should expect higher rates of capital investment in:
A)X relative to Y,eventually resulting in increased labor demand in X
B)X relative to Y,eventually resulting in reduced labor demand in X
C)Y relative to X,eventually resulting in increased labor demand in X
D)Y relative to X,eventually resulting in reduced labor demand in X

Question

Answer questions on the basis of the following diagram. Assume all migration is costless.

-If wages are initially $10 in country X and $25 in country Y,then we should expect higher rates of capital investment in:
A)X relative to Y,eventually resulting in increased labor demand in X 
B)X relative to Y,eventually resulting in reduced labor demand in X 
C)Y relative to X,eventually resulting in increased labor demand in X 
D)Y relative to X,eventually resulting in reduced labor demand in X

Quizplus · Accepted Answer

If wages are initially lower in country X, firms will choose to invest more in capital in order to increase efficiency and output. However, as capital investment increases, the demand for labor will also increase, leading to an increased demand for labor in country X. This would result in a reduction of the wage gap between the two countries.

Answer Questions on the Basis of the Following Diagram