In the long run, immigration will shift the sending country's production possibilities frontier inward. This shift will cause:
A) a larger decline in the potential output of the capital-intensive good.
B) a larger decline in the potential output of the labor-intensive good.
C) equal declines in the potential output of both the labor-intensive and the capital-intensive good.
D) a decline in the potential output of the labor-intensive good and an increase in the potential output of the capital-intensive good.

Question

Quizplus · Accepted Answer

Immigration leads to an increase in the supply of labor in the receiving country, which causes a decrease in the local wage rate. This decreases the demand for labor in the sending country, leading to an outward shift in the sending country's production possibilities frontier. However, this shift is not uniform across all industries. In general, industries that are labor-intensive will experience a larger decline in potential output compared to capital-intensive industries, as labor becomes relatively scarcer in the sending country. Therefore, the potential output of the labor-intensive good will decline more than the potential output of the capital-intensive good.

In the Long Run, Immigration Will Shift the Sending Country's