A storm destroys several factories, reducing the stock of capital. What effect does this event have on factor markets?

a. Wages and the rental price of capital both rise.
b. Wages and the rental price of capital both fall.
c. Wages fall and the rental price of capital rises.
d. Wages rise and the rental price of capital falls.


Answer: c. Wages fall and the rental price of capital rises.

Economics

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