1 Assume that labor moves into the agricultural sector and away from the manufacturing sector. This will cause the marginal product of land (MPTA) to increase and the marginal product of capital (MPKM) to decrease.

a. Does this contradict the assumption we usually make about diminishing marginal product? Explain.

b. Briefly explain the real-life intuition as to why this occurs.

2. Why do economists argue that despite the existence of parties that “lose” from trade in the specific-factors model, that trading makes a country better off?