Suppose that a large lake in the middle of Minnesota evaporates,leaving fertile farm land for growing corn.Assuming that land and labor are complements in a farming production function,what would happen to the wages earned by workers and rents earned by landowners?

Question

Quizplus · Accepted Answer

With the disappearance of the lake, there will be an increase in the supply of land available for farming. This will lead to an increase in the productivity of labor, thereby increasing the demand for labor. As a result, wages earned by workers will increase. However, since land and labor are complements, the increase in the productivity of labor will also lead to a decrease in the demand for land, causing rents earned by landowners to decrease. Therefore, wages would increase, and rents would decrease.

Suppose That a Large Lake in the Middle of Minnesota