In the specific-factors model, emigration causes __________ in the capital-labor ratio and __________ in the return to capital.
A) increases; decreases
B) increases; increases
C) decreases; decreases
D) decreases; increases

Question

Quizplus · Accepted Answer

In the specific-factors model, emigration causes an increase in the capital-labor ratio because capital is fixed in the short run, while labor is mobile. This increase in the capital-labor ratio leads to a decrease in the return to capital, as the marginal product of capital falls.

In the Specific-Factors Model, Emigration Causes __________ in the Capital-Labor