Scenario: Farm Country and Industry Country are two neighboring countries. Both countries produce only one good: good X. Production in both countries is a function of total efficiency units of labor and physical capital stock.
-Refer to the scenario above.A labor strike will disproportionally affect output in ________.
A) the country that uses worse technology
B) Farm Country, if it uses less capital in the production of the same amount of good X as Industry Country
C) Industry Country, if both countries face the same aggregate production function
D) the country that produces more output initially

Question

Quizplus · Accepted Answer

If both countries have the same aggregate production function, a labor strike will affect both countries equally. However, if Farm Country uses less capital in the production of the same amount of good X as Industry Country, it is likely that Farm Country relies more heavily on labor for production. Thus, a labor strike will disproportionally affect output in Farm Country.

Scenario: Farm Country and Industry Country Are Two Neighboring Countries