Canada has a much lower population density than does Japan.Therefore,the price of land (relative to the price of labour)is lower in Canada than in Japan.Consider a Canadian firm and a Japanese firm,both producing rice,both having access to the same technologies,and both striving to minimize costs.Now suppose that the relative price of land rises in Canada but remains the same in Japan.The effect on the use of inputs will be to
A)not change the land/labour ratio for either firm.
B)increase the land/labour ratio for both the Canadian and the Japanese firms.
C)increase the land/labour ratio for the Canadian firm.
D)decrease the land/labour ratio for the Canadian firm.
E)decrease the land/labour ratio for both the Canadian and the Japanese firms.

Question

Quizplus · Accepted Answer

When the relative price of land rises in Canada, the Canadian firm will substitute away from the now more expensive land towards relatively cheaper labor, thus decreasing the land/labor ratio. The Japanese firm is unaffected as the price of land in Japan remains the same.

Canada Has a Much Lower Population Density Than Does Japan