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)increase the land/labour ratio for both the Canadian and the Japanese firms.
B)decrease 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)not change the land/labour ratio for either firm.

Question

Quizplus · Accepted Answer

Since the relative price of land has increased in Canada, the Canadian firm will have to use less land and more labour to minimize costs. Therefore, the land/labour ratio for the Canadian firm will decrease. However, since the price of land has remained the same in Japan, the Japanese firm's use of inputs will not change, and its land/labour ratio will remain the same.

Canada Has a Much Lower Population Density Than Does Japan