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Suppose that all gods are made with two factors, labor and capital

Economics Mar 12, 2021

Suppose that all gods are made with two factors, labor and capital. The table below shows the total endowments of each factor in the US and Canada.

United States Canada

Workers 100 10

Machines 20 4

Relative to the U.S., Canada is

Question 12 options:

Capital scarce

labor scarce

not enough information is given to tell

Labor abundant

Expert Solution

The correct option is 2nd "labor scarce".

Capital/Labor ratio (K/L), US = 0/100 = 0.2

K/L ratio, Canada = 4/10 = 0.4

Since Canada has higher (K/L) ratio, it has relative abundance of capital and relative scarcity of labor compared to US.

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