Using the short-run specific factors model, consider a situation where a country discovers a new technology that increases the amount of arable land it has for production. Assume that land is specific to food and cannot be used for clothing. a. In a diagram of the labor market, show what would happen to the amount of labor in each industry, the nominal wage and the real wage in terms of each good. Explain why the curve shifts in this way.
b. Clearly explain what would happen (and how you know what happens) to the real return of capital and the real return on land.