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

question 21

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 from $3 per unit to $4 per unit. The price of wheat remains unchanged at $3 per unit. The wage rate and the rental rate change to _____ and _____ respectively._____.

• A)$3/8; $7/8
• B)$1; $5/3
• C)$5/3; $2/3
• D)$4/7; $3/7

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Definitions:

Financing Activities

Transactions and events where a company generates or pays back capital, including issuing shares or debt and dividend payments.

Balance Sheet

A financial statement that presents a company’s financial position at a specific point in time, detailing assets, liabilities, and shareholders' equity.

Statement Of Cash Flows

A financial report that provides a summary of a company's cash inflows and outflows over a specific period.

Net Income

The total profit of a company after all revenues and gains are added together and all expenses and losses are subtracted.