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In: Economics

Q1. Consider Gambinia that produces manufacturing and agricultural products. Assume that land is a factor used...

Q1. Consider Gambinia that produces manufacturing and agricultural products. Assume that land is a factor used specifically in the agricultural sector, and capital is used in manufacturing sector only. If the price of agricultural products on the world market increases, capital owners in which sector will benefit the most:

1. Both sector will lose

2. Agricultural

3. Nominal rent will increase in agriculture sector but real rent will not change

4. Manufacturing

Q2. Consider an economy with two sectors: agriculture and production of fidget spinners. There are two factors used in the production of both industries: labor, mobile between the industries, land specific to agricultural production and capital specific to the production of fidget spinners. Discovery of graphene increased the productivity of workers in the fidget spinner industry by 10%. What happened with the real wage of workers?

1. Nominal wage increased, real wage did not change

2. it decreased

3. it increased

4. the effect is ambiguous, it depends on worker's consumption basket

Solutions

Expert Solution

As per the information given in the question,

Q1. Consider Gambinia that produces manufacturing and agricultural products. Assume that land is a factor used specifically in the agricultural sector, and capital is used in manufacturing sector only. If the price of agricultural products on the world market increases, capital owners in which sector will benefit the most: Nominal rent will increase in agriculture sector but real rent will not change. So the correct option is 3.

Q2. Consider an economy with two sectors: agriculture and production of fidget spinners. There are two factors used in the production of both industries: labor, mobile between the industries, land specific to agricultural production and capital specific to the production of fidget spinners. Discovery of graphene increased the productivity of workers in the fidget spinner industry by 10%. The real wage of workers will have effect that Nominal wage increased, real wage did not change. So correct option is 1.

Rahul Sunny answered 2 years ago
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