Suppose That Due to a Drought, the Price of Agricultural

question 6

Multiple Choice

Suppose that due to a drought, the price of agricultural goods rises by 10%. If land is specific to agriculture, capital is specific to manufacturing, and labor is mobile between sectors, which of the following is true?

• A) The percentage change in labor income is less than zero.
• B) The percentage change in labor income is greater than 10%.
• C) The percentage change in returns to capital is greater than 10%.
• D) The percentage change in labor income is less than 10%.

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