If the wage rate in the agriculture sector is lower than the manufacturing sector, then labor will migrate to the manufacturing sector. This will cause:
A) both the wage and the marginal product of labor in the manufacturing sector to decrease.
B) both the wage and the marginal product of labor in the agriculture sector to decrease.
C) the nation to import more goods.
D) There will be no effect on either sector.

Question

Quizplus · Accepted Answer

When labor migrates to the manufacturing sector, the increase in supply of labor will decrease the wage rate in the manufacturing sector due to the law of supply and demand. As a result, the marginal product of labor in the manufacturing sector will also decrease due to the diminishing marginal productivity of labor. Therefore, both the wage and the marginal product of labor in the manufacturing sector will decrease. There will be no effect on the agriculture sector as it will be facing a labor shortage, which may increase the wage rate and the marginal product of labor in the sector. The nation may import more goods from other countries to make up for the shortage of agricultural production.

If the Wage Rate in the Agriculture Sector Is Lower