# Awesome Quiz On Agriculture

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Econ.

• 1.

### Suppose that the wage is \$20 per hour in a two-sector (manufacturing and agriculture) specific-factors model. Currently, the prices of manufactured and agricultural outputs are \$5 and \$1, respectively; the marginal product of labor in the manufactured sector is 6 units per hour; and the marginal product of labor in the agricultural sector is 10 units per hour. What will happen to the distribution of labor between the two sectors?

• A.

Nothing. The current allocation of labor between the two sectors is ideal.

• B.

The manufacturing sector will demand more labor, and the agricultural sector will demand less labor at the current wage.

• C.

The agricultural sector will demand more labor, and the manufacturing sector will demand less labor at the current wage.

• D.

Both the agricultural and the manufacturing sector will demand more labor at the current wage.

B. The manufacturing sector will demand more labor, and the agricultural sector will demand less labor at the current wage.
Explanation
Based on the information provided, the marginal product of labor in the manufactured sector is higher than the agricultural sector. This means that each additional unit of labor in the manufactured sector is more productive than in the agricultural sector. Therefore, the manufacturing sector will demand more labor because it can produce more output with each additional worker, while the agricultural sector will demand less labor because it is less efficient in terms of labor productivity.

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• 2.

### Consider the information provided about the price of agriculture and manufacturing goods in two countries (Home and Foreign). i) Under the condition of no trade, how is the relative price of manufacturing goods given?___; ii) If the two countries open their markets for trade, then___; iii) Under free trade conditions, Foreign will export __goods and Home will export __goods; and iv) as a nation begins to export, its own relative price of exported goods will ___, as it imports other goods, the relative price of those will ___, and thus____: Ø¬Ø¯ÙˆÙ„

• A.

I) 0.40 in Foreign; ii) Home has the comparative advantage in agriculture; iii) agriculture; manufacturing; and iv) rise; fall; raising its standard of living

• B.

I) 1.66 in Homes; ii) Home has the comparative advantage in manufacturing, iii) manufacturing and agriculture iv) rise; fall; raising its standard of living.

• C.

I) 0.66 in Homes; ii) Home has the comparative advantage in manufacturing, iii) agriculture; manufacturing; and iv) rise; fall; raising its standard of living.

• D.

I) 1.66 in Homes; ii) Home has the comparative advantage in manufacturing, iii) agriculture; manufacturing; and iv) rise; fall; raising its standard of living.

• E.

I) 0.60 in Home; ii) Foreign has a comparative advantage in manufacturing; iii) manufacturing; agriculture; and iv) rise; fall; lowering its standard of living.

D. I) 1.66 in Homes; ii) Home has the comparative advantage in manufacturing, iii) agriculture; manufacturing; and iv) rise; fall; raising its standard of living.
Explanation
Under the condition of no trade, the relative price of manufacturing goods in Home is 1.66. If the two countries open their markets for trade, Home, which has the comparative advantage in manufacturing, will export manufacturing goods, while Foreign will export agriculture goods. As a nation begins to export, its own relative price of exported goods will rise, as it imports other goods, the relative price of those will fall, raising its standard of living.

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• 3.

### Suppose that world demand shifts away from agricultural goods toward high-tech manufactured goods. If land is specific to agriculture, capital is specific to manufacturing, and labor is mobile between sectors, which of the following is true?

• A.

The percentage change in capital income is less than the percentage change in labor income.

• B.

The percentage change in labor income is greater than the percentage change in the relative price of manufacturing goods.

• C.

The percentage change in capital income may be greater than zero.

• D.

The percentage change in labor income is less than the percentage change in the relative price of manufacturing goods.

D. The percentage change in labor income is less than the percentage change in the relative price of manufacturing goods.
Explanation
When world demand shifts towards high-tech manufactured goods, the relative price of manufacturing goods will increase. As capital is specific to manufacturing and labor is mobile between sectors, there will be a higher demand for capital in the manufacturing sector, leading to an increase in capital income. However, as labor is mobile, workers can easily move from agriculture to manufacturing, increasing the supply of labor in the manufacturing sector. This increase in labor supply will result in a decrease in labor income in the manufacturing sector. Therefore, the percentage change in labor income is less than the percentage change in the relative price of manufacturing goods.

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• 4.

### If a nation begins to trade, i) it will be able to sell (export) the product for which its own relative price is___; ii) it will wish to buy (import) the product for which its own relative price is___; and iii) what will happen to the relative price of the export when trade occurs?____.

• A.

I) Higher than other nations, ii) Higher than other nations; and iii) it fall rise.

• B.

I) Higher than other nations, ii) lower than other nations; and iii) it will rise.

• C.

I) lower than other nations, ii) lower than other nations; and iii) it fall rise.

• D.

I) lower than other nations, ii) Higher than other nations; and iii) it will rise.

• E.

I) lower than other nations, ii) Higher than other nations; and iii) it will fall.

D. I) lower than other nations, ii) Higher than other nations; and iii) it will rise.
Explanation
When a nation begins to trade, it will be able to sell (export) the product for which its own relative price is lower than other nations. This means that the nation has a comparative advantage in producing and selling that particular product. On the other hand, the nation will wish to buy (import) the product for which its own relative price is higher than other nations. This implies that the nation does not have a comparative advantage in producing and selling that product, so it is more cost-effective to import it from other nations. Finally, when trade occurs, the relative price of the export will rise. This is because the nation's ability to sell the product at a lower price than other nations will increase its competitiveness in the global market, leading to a higher price for its exports.

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• 5.

### Suppose that the Home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in agricultural output. Will workers be better or worse off following the opening of trade with other countries?

• A.

Workers will be better off because the nominal wage increases.

• B.

Workers will be worse off because the nominal wage decreases.

• C.

Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the real wage in terms of the manufactured good falls.

• D.

Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises.

• E.

We need more information about nominal wages to determine winners and losers.

D. Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises.
Explanation
In the two-sector specific-factors model, if the home country has a comparative advantage in agriculture, the opening of trade with other countries can have different effects on workers. The real wage in terms of the agricultural good is expected to fall, which could make workers worse off. However, the real wage in terms of the manufactured good is expected to rise, which could make workers better off. Therefore, workers may be better off or worse off depending on the specific changes in real wages for each sector. The answer suggests that both scenarios are possible.

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• 6.

### I) As relative prices in various industries change due to trade, the marginal product of the mobile resources used in the expanding industry ___, and the marginal product of the mobile resources used in the contracting industry ___; ii) As relative prices in various industries change due to trade, the marginal product of the fixed resources used in the expanding industry ___, and the marginal product of the fixed resources used in the contracting industry ___; and iii) If the relative price of one product rises and labor is mobile, the equilibrium real wage compared with the rise in relative price will:__.

• A.

I) rises; rises, ii) rises and falls; and iii) rise by less than the price increase in real terms.

• B.

I) falls; rises, ii) rises and falls; and iii) rise by less than the price increase in percentage terms.

• C.

I) falls; rises, ii) falls and rises; and iii) rise by less than the price increase in percentage terms.

• D.

I) falls; rises, ii) rises and falls; and iii) rise by more than the price increase in real terms.

• E.

I) falls; rises, ii) falls and rises; and iii) rise by more than the price increase in percentage terms.

B. I) falls; rises, ii) rises and falls; and iii) rise by less than the price increase in percentage terms.
Explanation
As relative prices change due to trade, the expanding industry becomes more profitable and attracts more mobile resources, causing the marginal product of mobile resources in that industry to rise. Conversely, the contracting industry becomes less profitable and loses mobile resources, leading to a fall in the marginal product of mobile resources in that industry. For fixed resources, the marginal product in the expanding industry initially rises as it becomes more profitable, but eventually falls as the industry reaches its capacity. In the contracting industry, the marginal product of fixed resources initially falls as it becomes less profitable, but eventually rises as the industry shrinks. Finally, if the relative price of a product rises and labor is mobile, the equilibrium real wage will rise, but by less than the price increase in percentage terms due to the substitution effect.

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• 7.

### Suppose that the Home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. Will workers be better or worse off following the opening of trade with other countries?

• A.

Workers will be better off because the nominal wage increases.

• B.

Workers will be worse off because the nominal wage decreases.

• C.

Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the real wage in terms of the manufactured good falls.

• D.

Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises.

• E.

C. Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the real wage in terms of the manufactured good falls.
Explanation
In the two-sector specific-factors model, if the home country has a comparative advantage in manufactured output, the opening of trade with other countries can affect workers' welfare in different ways. The real wage in terms of the agricultural good may rise, which would benefit workers in the agricultural sector. However, the real wage in terms of the manufactured good may fall, which would harm workers in the manufacturing sector. Therefore, workers may be better off or worse off depending on the relative changes in real wages for each sector.

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• 8.

### According to the information provided in the table, i) the wage rate in the agriculture sector is___; ii) the wage in the manufacturing sector is ___; iii) we can expect the following to happen in the economy?___; and iv) if the price of the agriculture good decreases to \$5, then what happen? ___ Ø¬Ø¯ÙˆÙ„

• A.

I) \$30; ii) \$50; iii) Labor will migrate from the manufacturing to the agriculture sector; and iv) wage rate in the agricultural sector will be \$25.

• B.

I) \$50; ii) \$30; iii) Labor will migrate from the agriculture to manufacturing sector; and iv) wage rate in the agricultural sector will be \$25.

• C.

I) \$30; ii) \$50; iii) Labor will migrate from the manufacturing to the agriculture sector; and iv) wage rate in the agricultural sector will be \$25.

• D.

I) \$50; ii) \$30; iii) Labor will migrate from the manufacturing to the agriculture sector; and iv) wage rate in the agricultural sector will be \$25 and more goods imported.

• E.

I) \$50; ii) \$30; iii) Labor will migrate from the manufacturing to the agriculture sector; and iv) wage rate in the agricultural sector will be \$25.

E. I) \$50; ii) \$30; iii) Labor will migrate from the manufacturing to the agriculture sector; and iv) wage rate in the agricultural sector will be \$25.
• 9.

### Suppose that labor is mobile between sectors but that capital and land are specific. Then labor will tend to benefit from trade when:

• A.

It spends a large amount of its income on the imported good.

• B.

It spends a large amount of its income on the exported good.

• C.

Wages do not change much in percentage terms.

• D.

All of these answer choices will occur.

A. It spends a large amount of its income on the imported good.
Explanation
When labor is mobile between sectors but capital and land are specific, labor will tend to benefit from trade when it spends a large amount of its income on the imported good. This is because when labor can easily move between sectors, it can take advantage of the lower prices of imported goods, which allows them to stretch their income further. Therefore, if labor spends a large portion of its income on imported goods, it will benefit the most from trade.

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• 10.

• A.

I) unchanged; ii) unchanged; iii) fall; iv) rise; v)rise; vi) rise; and vii) fall

• B.

I) decrease; ii) unchanged; iii) fall; iv) rise; v)rise; vi) rise; and vii) fall

• C.

I) decrease; ii) increase; iii) fall; iv) rise; v)fall; vi) rise; and vii) fall

• D.

I) decrease; ii) increase; iii) fall; iv) rise; v)rise; vi) rise; and vii) fall

• E.

I) increase ; ii) increase; iii) fall; iv) fall; v)rise; vi) rise; and vii) fall

A. I) unchanged; ii) unchanged; iii) fall; iv) rise; v)rise; vi) rise; and vii) fall
Explanation
When the home country has a comparative advantage in manufacturing output, the amount of land used in producing agricultural output will remain unchanged when trade occurs (i). The amount of capital used in manufacturing production will also remain unchanged (ii). However, the return (rental) on land will fall (iii) due to increased competition from imported agricultural products. On the other hand, the return (rental) on capital will rise (iv) as the demand for manufacturing goods increases. The return (rental) on capital will also rise (v) due to increased demand for capital-intensive manufacturing production. If the comparative advantage is in agricultural output, the return (rental) on land will rise (vi) due to increased demand for agricultural products. However, the return (rental) on capital will fall (vii) as the demand for capital-intensive manufacturing goods decreases.

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• 11.

### The specific-factors model concludes that if there is a decrease in relative price (and an expansion) in one industry, the factor specific to that industry will:

• A.

Experience an increase in its marginal product.

• B.

Experience a decrease in its marginal product.

• C.

Be transferred to other industries.

• D.

Have competition as additional units of that specific factor are hired from other industries.

B. Experience a decrease in its marginal product.
Explanation
According to the specific-factors model, when there is a decrease in relative price and an expansion in one industry, the specific factor (i.e., the factor specific to that industry) will experience a decrease in its marginal product. This means that as more units of the specific factor are employed in that industry, the additional output produced by each additional unit of the factor will decrease. This is because the factor becomes relatively more abundant in that industry, leading to diminishing returns and a decrease in its productivity.

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• 12.

### Why does the return to capital change after trade occurs?

• A.

There is more labor used per unit of capital in the manufacturing sector.

• B.

There is more capital used per unit of labor in the manufacturing sector.

• C.

There is more labor used per unit of land in the agricultural sector.

• D.

There is more land used per unit of labor in the agricultural sector.

• E.

Amount of land or capital will depend on amount of labor

A. There is more labor used per unit of capital in the manufacturing sector.
Explanation
After trade occurs, the return to capital changes because there is more labor used per unit of capital in the manufacturing sector. This means that the manufacturing sector is able to produce more output with the same amount of capital by employing more labor. As a result, the return to capital decreases as the additional labor increases the productivity of capital.

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• 13.

### The table shows an economy before and after trade. According to the table, what is the return to capital after trade occurs? ___; ii) What is the return to land after trade occurs?___; and iii) Why does the return to capital change after trade occurs?___ Ø¬Ø¯ÙˆÙ„ Ø·ÙˆÙŠÙ„

• A.

I) \$12.00 per unit; ii) \$2.5 per acre; and iii) There is more labor used per unit of capital in the manufacturing sector.

• B.

I) \$24.00 per unit; ii) \$3.00 per acre; and iii) There is more capital used per unit of labor in the manufacturing sector.

• C.

I) \$17.60 per unit; ii) \$3.00 per acre; and iii) There is more labor used per unit of capital in the manufacturing sector.

• D.

I) \$24.00 per unit; ii) \$5.00 per acre; and iii) There is more labor used per unit of capital in the manufacturing sector

A. I) \$12.00 per unit; ii) \$2.5 per acre; and iii) There is more labor used per unit of capital in the manufacturing sector.
Explanation
The return to capital after trade occurs is \$12.00 per unit and the return to land after trade occurs is \$2.5 per acre. The return to capital changes after trade occurs because there is more labor used per unit of capital in the manufacturing sector.

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• 14.

### I) As a general rule, when there are specific factors, owners of factors specific to the importing industry___, owners of factors specific to export industries___, and mobile factor owners (such as labor) in that importing industry ___.

• A.

Benefited; benefited; and either benefited or harmed depending on consumption patterns

• B.

Benefit; benefited; and either benefited or harmed depending on consumption patterns

• C.

Harmed; benefited; and either benefited or harmed depending on consumption patterns

• D.

Either benefited or harmed depending on consumption patterns; benefited; and either benefited or harmed depending on consumption patterns

• E.

Harmed; benefited; and benefited

C. Harmed; benefited; and either benefited or harmed depending on consumption patterns
Explanation
When there are specific factors, owners of factors specific to the importing industry are harmed, owners of factors specific to export industries are benefited, and mobile factor owners (such as labor) in that importing industry either benefit or are harmed depending on consumption patterns.

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• 15.

### The table shows the revenues and costs for 2 industries) Suppose the price of manufacturing goods increases by 10% (PM), and the change in wages is given as 5%; then the i) rental rate on capital will___; ii) rental rate on land will___; and iii) what would we expect to take place?___ Ø¬Ø¯ÙˆÙ„

• A.

I) decrease by 21.67%; ii) decrease by 7.5%; and iii) More output will be produced in the manufacturing sector.

• B.

I) increase by 21.67%; ii) increased by 7.5%; and iii) More output will be produced in the manufacturing sector.

• C.

I) increase by 21.67%; ii) decrease by 7.5%; and iii) More output may be produced in the manufacturing sector.

• D.

I) increase by 21.67%; ii) decrease by 5%; and iii) rental rate of capital will decline.

• E.

I) increase by 21.6%; ii) decrease by 7.5%; and iii) more output will be produced in the manufacturing sector.

C. I) increase by 21.67%; ii) decrease by 7.5%; and iii) More output may be produced in the manufacturing sector.
Explanation
The correct answer is i) increase by 21.67%; ii) decrease by 7.5%; and iii) More output may be produced in the manufacturing sector. When the price of manufacturing goods increases by 10%, it leads to an increase in revenues for the manufacturing industry. As a result, the demand for capital increases, causing the rental rate on capital to increase by 21.67%. On the other hand, the change in wages is given as 5%, which leads to an increase in costs for the manufacturing industry. This decrease in profits causes the rental rate on land to decrease by 7.5%. Overall, with higher revenues and lower costs, more output may be produced in the manufacturing sector.

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• 16.

### Suppose that the Home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. Which statement below best describes changes in returns on capital and land after trade occurs?

• A.

The return on capital and land will both rise

• B.

The return on capital and land will both fall.

• C.

The return on capital will rise and the return on land will fall.

• D.

The return on capital will fall and the return on land will rise

• E.

More information is needed to reach a conclusion

C. The return on capital will rise and the return on land will fall.
Explanation
In the two-sector specific-factors model, when the home country has a comparative advantage in manufactured output, trade will lead to an increase in the return on capital and a decrease in the return on land. This is because the home country will specialize in manufacturing, leading to an increase in demand for capital and a decrease in demand for land. As a result, the return on capital will rise due to increased demand, while the return on land will fall due to decreased demand.

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• 17.

### Suppose that the Home country in the two-sector (manufacturing and agriculture) specific-factors model has a comparative advantage in manufactured output. After trade occurs, the return on capital will ___ than the price of the manufactured good.

• A.

Increase faster

• B.

Increase slower

• C.

Increase at the same rate

• D.

Decrease

• E.

More information is needed to draw conclusion

A. Increase faster
Explanation
In the two-sector specific-factors model, if the Home country has a comparative advantage in manufactured output and trade occurs, it means that the Home country will specialize in manufacturing and export more manufactured goods. This will increase the demand for capital, as manufacturing requires more capital-intensive production methods. As the demand for capital increases, the return on capital will also increase. Therefore, the return on capital will increase faster than the price of the manufactured good.

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• 18.

### Which of the following statements about the specific-factors model is true?

• A.

When exports of a product rise, the increase in revenue is divided among the factors of production equally.

• B.

When imports rise, revenues of firms that compete with imports fall. The decrease in revenue is divided among the factors of production equally.

• C.

When exports of a product rise, specific factors gain less and mobile factors gain more; when imports rise, specific factors gain more and mobile factors gain less.

• D.

When exports of a product rise, specific factors gain more than mobile factors; when imports rise, specific factors lose more than mobile factors

D. When exports of a product rise, specific factors gain more than mobile factors; when imports rise, specific factors lose more than mobile factors
Explanation
In the specific-factors model, specific factors refer to resources that are specialized and cannot be easily moved between industries, such as land or specialized labor. Mobile factors, on the other hand, can easily move between industries, such as capital or skilled labor.

According to the given answer, when exports of a product rise, specific factors gain more than mobile factors. This is because the increase in exports leads to an increase in the demand for the specific factors used in producing that product. Since these factors are specific to the industry, their value and income increase.

Similarly, when imports rise, specific factors lose more than mobile factors. This is because the increase in imports leads to a decrease in the demand for domestically produced goods, which in turn reduces the demand for the specific factors used in producing those goods. As a result, the value and income of these specific factors decrease more compared to the mobile factors.

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• 19.

### In what way do the conclusions of the Ricardian and the specific-factors models differ?

• A.

In the specific-factors model, all resources (labor, land, capital) are better off with free trade. In the Ricardian model, only labor is better off with free trade.

• B.

In the Ricardian model, a country is better off with free trade. In the specific-factors model, some of a country's resources will be worse off with free trade.

• C.

In the Ricardian model, some of a country's resources will be worse off with free trade. In the specific-factors model, some of a country's resources will be better off with free trade.

• D.

In the Ricardian model, labor will be worse off with free trade. In the specific-factors model, labor will be better off with free trade.

B. In the Ricardian model, a country is better off with free trade. In the specific-factors model, some of a country's resources will be worse off with free trade.
Explanation
In the Ricardian model, a country as a whole benefits from free trade because it allows the country to specialize in producing goods in which it has a comparative advantage. This leads to increased efficiency and economic growth. However, in the specific-factors model, while the country as a whole may still benefit from free trade, some specific resources within the country may be negatively affected. This is because certain resources may become less valuable or obsolete in the face of competition from foreign producers. Thus, the specific-factors model recognizes that there can be winners and losers within a country due to free trade.

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• 20.

### Suppose that due to a drought, the price of agricultural goods rises. If land is specific to agriculture, capital is specific to manufacturing, and labor is mobile between sectors, which of the following is true?

• A.

The percentage change in labor income is less than zero.

• B.

The percentage change in labor income is greater than the percentage change in the relative price of agricultural goods.

• C.

The percentage change in labor income is greater than the percentage change in the relative price of manufacturing goods.

• D.

The percentage change in labor income is less than the percentage change in the relative price of agricultural goods.

D. The percentage change in labor income is less than the percentage change in the relative price of agricultural goods.
Explanation
In this scenario, due to the drought, the price of agricultural goods rises. Since labor is mobile between sectors, workers can move from agriculture to manufacturing. As a result, the demand for labor in agriculture decreases, leading to a decrease in labor income. However, the increase in the price of agricultural goods does not directly translate to an increase in labor income. Therefore, the percentage change in labor income is less than the percentage change in the relative price of agricultural goods.

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