Consider an economy that only produces steel and shoes; steel is capital intensive and shoes are labor intensive. How will emigration of labor from this economy affect production?

Question

Quizplus · Accepted Answer

Emigration of labor will reduce the supply of labor, increasing the wage rate. As shoes are labor-intensive, the cost of producing shoes will increase, leading to a decrease in the production of shoes. On the other hand, as steel is capital-intensive, the cost of producing steel will decrease due to the decrease in labor supply, leading to an increase in the production of steel. Thus, production of the labor-intensive good (shoes) will fall, and production of the capital-intensive good (steel) will rise.

Consider an Economy That Only Produces Steel and Shoes; Steel