Suppose wine production is capital intensive and corn production is labor intensive.An increase in the demand for wine will cause:
A)an increase in the marginal cost of corn relative to the marginal cost of wine.
B)an increase in the price of labor relative to the price of capital.
C)a decrease in the marginal cost of capital.
D)an increase in the price of capital relative to the price of labor.

Question

Quizplus · Accepted Answer

If the demand for wine increases, the wine producers will demand more capital which will result in an increase in the price of capital relative to the price of labor. This, in turn, will increase the marginal cost of corn relative to the marginal cost of wine. Therefore, option D is correct.

Suppose Wine Production Is Capital Intensive and Corn Production Is