Question

2. In an economy with two sectors, what are the long-run effects of increased immigration on employment under free trade?

A) Employment will rise in one sector and fall in the other sector.

B) Wages will fall in both sectors.

C) Employment will rise in both sectors.

D) There will be no change in employment in either sector.

3. In 1994, the United States, Mexico and Canada created the largest free trade region in the world with the North American Free Trade Agreement (NAFTA). After renegotiating the NAFTA in 2017-2018, the three nations signed the Agreement between the United States of America, the United Mexican States, and Canada^{[1] (Links to an external site.)} (USMCA) on December 10, 2019, which is expected to take effect on July 1, 2020.

According to the Rybczynski theorem, how will immigration from Mexico to the United States affect the Mexican economy?

A) Wages of Mexican workers will increase.

B) Wages of Mexican workers will decrease.

C) Mexico's production of labor-intensive products will decrease.

D) Mexico's production of capital-intensive products will decrease.

4. Under free trade, when factors of production are mobile across sectors and labor immigrates, capital will:

A) become idled as owners of capital seek more profitable opportunities.

B) move to the labor-intensive sector until returns are again equalized.

C) remain fixed because capital is never mobile.

D) move to the capital-intensive sector.

5. According to the Rybczynski theorem, immigration will cause:

A) an increase in the output of the labor-intensive good and a decrease in the output of the capital-intensive good in the receiving country.

B) an increase in the output of both the labor-intensive and the capital-intensive goods in the receiving country.

C) a decrease in the output of both the labor-intensive and the capital-intensive good in the receiving country.

D) a decrease in the output of the labor-intensive good and an increase in the output of the capital-intensive good in the receiving country.

6. Under free trade, what is the overall long-run impact of immigration on the factor prices?

A) Both relative and absolute returns to factors of production will increase.

B) Returns to labor will increase and returns to capital will decrease.

C) Returns to labor and returns to capital will both increase.

D) Both relative and absolute returns to factors of production will not change.

Answer 1

2. Wages will fall in both sectors
Wages will fall in both sectors as due to the increaaes supply of labor force, the equilibrium price will fall and equilibrium quantity will rise.

3 Mexico's production of capital intensive products will decrease
With the start of the free trade agreement, US and Canada countries wich are known for producing capital intensive goods will export it to Mexico, this will lower the production of capital intensive goods in Mexico. But Mexico's labor intensive industries will be benefitted by it.

4 move to the labor-intensive sector untill returns are equalized
As there will be a movement of labor across diffeent secotrs , this will make the cost of labor to decrease in such sectors, making those sectors profitable. Thus investors will be more willing to invest in those sectore initially, untill returns are equalised in every industry.

5 an increase in the output of the labor-intensive good and a decrease in the output of the capital-intensive good in the receiving country.

Immigration will cause labour intensive industries more profitable. Thus Capital will flow form other industries to labour intensive industries.

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