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

question 17

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. $$\begin{array} { | c | c | c | } \hline & 1 \text { pound of bread } & \text { 1 gallon of wine } \\\hline \text { Capital input } & 5 \text { units } & 20 \text { units } \\\hline \text { Labor input } & 4 \text { units } & 10 \text { units } \\\hline\end{array}$$ In the long run, which of the following can most reasonably be inferred after this country engages in free trade?

• A)The wage rates will decline but the returns to capital will increase.
• B)The returns to capital will decline but the wage rates will increase.
• C)The wage rates will decline in the wine industry and will increase in the bread industry.
• D)The returns to capital will fall in the wine industry and will rise in the bread industry.

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