Suppose Country A, a Labor-Abundant Country, Produces Only Wheat and Cloth

question 18

Multiple Choice

Suppose country A, a labor-abundant country, produces only wheat and cloth. The following equations illustrate the prices and costs of wheat and cloth in the country, where the numbers indicate the amounts of labor and land needed to produce a unit of wheat and cloth. 'w' is the wage rate and 'r' is the rental rate of land. Price of wheat = 1w + 2r
Price of cloth = 2w + 1r
Suppose country A engages in free trade and the price of cloth increases to $4 per unit. However, the price of wheat remains unchanged. As a result of the change in the price of cloth, the landowners are most likely to be able to:

• A)purchase more of both cloth and wheat than in the absence of trade.
• B)purchase more wheat but less cloth than in the absence of trade.
• C)purchase less of both cloth and wheat than in the absence of trade.
• D)purchase more cloth but less wheat than in the absence of trade.

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