In case of trade liberalization in the Specific Factors model, the real wage of workers that mostly consume exported good a) Increases. b) Decreases. c) Remains the same. d) Is always equal to nominal wage
Question
In case of trade liberalization in the Specific Factors model, the real wage of workers that mostly consume exported good a) Increases. b) Decreases. c) Remains the same. d) Is always equal to nominal wage
Solution
In the Specific Factors model, trade liberalization often leads to an increase in the production of the exported good. This is because the country now has a larger market to sell to, which increases the demand for that good.
The workers who are involved in the production of the exported good will likely see an increase in their real wages. This is because the increased demand for the exported good increases the demand for their labor, which drives up wages.
Furthermore, if these workers mostly consume the exported good, their real wage (which is the nominal wage adjusted for changes in prices) may increase even more. This is because the price of the exported good may decrease due to increased efficiency in production or increased competition in the global market.
So, the answer is:
a) Increases.
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