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

question 3

Multiple Choice

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. $$\begin{array} { | c | c | c | } \hline & 1 \text { pound of bread } & \text { 1 gallon of wine } \\\hline \text { Capital input } & 5 \text { units } & 20 \text { units } \\\hline \text { Labor input } & 4 \text { units } & 10 \text { units } \\\hline\end{array}$$ Which of the following is most likely to happen if country A engages in free trade with other countries?

• A)The prices of both bread and wine will fall in the domestic market.
• B)The price of bread will fall but the price of wine will rise in the domestic market.
• C)The prices of both bread and wine will rise in the domestic market.
• D)The price of bread will rise but the price of wine will fall in the domestic market.

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Definitions:

Loanable Funds

The money available for borrowing; the market where savers supply funds for loans to borrowers.

Supply

A relation between the price of a good and the quantity that producers are willing and able to sell per period, other things constant.

Demand

Refers to the quantity of a good or service that consumers are willing and able to purchase at various price levels over a given period of time.

Interest Rate

The percentage charged on borrowed money or paid on savings accounts, essentially the cost of borrowing money or the reward for saving.