Suppose that, other things equal, labor moves from country A to country B. In a two-Factor world (capital and labor), this labor movement will lead to

Question

Quizplus · Accepted Answer

As labor moves from country A to country B, the increase in labor supply in country B will lead to a decrease in the wage rate in country B. This, in turn, will lead to a decrease in the cost of production in country B which will make it more attractive for investors to shift their resources from country A to country B. As a result, the total return to owners of capital in country B will increase while it will decrease in country A. Therefore, the correct answer is B.

Suppose That, Other Things Equal, Labor Moves from Country a to Country