Question: How would your answer to Problem change if instead we use the long-run model, with shoes and computers produced using labor and capital?
Problem: In the short-run specific-factors model, examine the impact on a small country following a natural disaster that decreases it population. Assume that land is specific to agriculture and capital is specific to manufacturing, whereas labor is free to move between the two sectors.
a. In a diagram similar to Figure, determine the impact of the decrease in the workforce on the output of each industry and the equilibrium wage.
b. What happens to the rentals on capital and land?
