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In the Specific-Factor Model with Land being used in Agriculture, Capital in Manufacturing, and Labor being mobile across the two industries.

/in /by

In the Specific-Factor Model with Land being used in Agriculture,

Capital in Manufacturing, and Labor being mobile across the two industries. Suppose that the price of agricultural goods decreases by 5%, the price of manufacturing goods increases by 5% and the marginal product of capital increases by 2%. Which outcome is possible?
The relative income of capital owners vs. land owners, RK/ RT, increases by…?
1.2%
2.5%
3.10%
4.15%

 
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