In a labor-abundant country, free trade will cause a(n) __________ in the rental of capital and a(n) _________ in the marginal product of capital.

Question

Quizplus · Accepted Answer

In a labor-abundant country, free trade will cause an increase in the rental of labor and a decrease in the rental of capital. This is because free trade leads to an increase in the demand for labor-intensive products and a decrease in the demand for capital-intensive products, thus increasing competition for labor and driving up its price, and decreasing competition for capital and driving down its price. With respect to the marginal product of capital, it will decrease because the decrease in the price of capital will lead to an increase in its supply, and since the marginal product of capital decreases as more capital is employed, the marginal product of capital will also decrease.

In a Labor-Abundant Country, Free Trade Will Cause A(n) __________