Consider an open, trading economy with two sectors: agriculture and the production of cars. There are two factors used in the production of both industries: labor, mobile between the industries, land specifically for agricultural production, and capital specific to the production of cars. Workers spend most of their earnings on cars.

The formation of free trade area led to a decrease in the price of cars by 5%. What observations will be applied?

A.The labour/capital ratio increases.

B.Labor force allocation remains the same.

C.None of the other three options are correct.

D.The manufacturing sector now uses relatively more labour.

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