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

question 31

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 can most reasonably be inferred for the short run after this country opens to free trade?

• A)The wage rates in all the sectors of the country will increase.
• B)The rental rates of capital in all the sectors of the economy will decline.
• C)The wage rates and the rental rates of capital will rise in the bread industry but will fall in the wine industry.
• D)The wage rates and the rental rates of capital will rise in the wine industry but will fall in the bread industry.

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Definitions:

Direct Method

A cash flow statement preparation approach that lists major operating cash receipts and payments, providing a clearer view of a company's cash flow from operations.

Accrual Accounting

An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.

Operating Cash Flows

Cash generated from a company's regular business operations.

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board that is used internationally.