Suppose that due to a drought, the price of agricultural goods rises. 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 the percentage change in the relative price of agricultural goods.
c. The percentage change in labor income is greater than the percentage change in the relative price of manufacturing goods.
d. The percentage change in labor income is less than the percentage change in the relative price of agricultural goods.
Ans: c. The percentage change in labor income is greater than the percentage change in the relative price of manufacturing goods.
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A) a legal; exceeds the B) an illegal; exceeds the C) a legal; is less than the D) an illegal; is less than the E) an illegal; equals
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A) that is the newest since newer models are better than old models. B) with the fewest unrealistic assumptions. C) that more often predicts with most accuracy. D) that is not subject to empirical verification.
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A. progressive B. regressive C. proportional D. lump-sum
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