Question

n a market system, as one industry expands while another contracts, resources will flow OA across industrie, diven by the changes in resource prices paildby tims O B because resource allocation will have to equalize between the two industries across industries, driven by the changes in resource prices paid by firms toward the industry where the product demand is declining away from the expanding industry toward the contracting one O D.

Answer 1

When one industry expands, the production increases. Therefore, the firm starts demanding more resources in that industry and the prices of the inputs increases. The opposite happens in the industry that is contracting. Therefore, a high price is paid in the expanding market and the firms are ready to pay low prices in the contracting economy. This shifts the resources from contracting economy to the expanding one.

Therefore, the correct answer is option A: across industries, driven by the changes in resource prices paid by firms.