As relative prices in various industries change due to trade, the marginal product of fixed resources used in the expanding industry __________, and the marginal product of fixed resources used in the contracting industry __________.
A) rises; falls
B) remains the same; remains the same
C) changes by exactly the same percentage; changes by exactly the same percentage
D) falls; rises

Question

Quizplus · Accepted Answer

As resources are shifted from the contracting industry to the expanding industry, the marginal productivity of resources increases in the expanding industry, and decreases in the contracting industry. This leads to an increase in relative prices in the expanding industry and a decrease in relative prices in the contracting industry.

As Relative Prices in Various Industries Change Due to Trade