Suppose that high wages in the United States resulted in an absolute disadvantage in the production of all goods. This would mean that:

Question

Quizplus · Accepted Answer

Even with an absolute disadvantage in the production of all goods due to high wages in the United States, trade based on comparative advantage could still be beneficial to the economy. Comparative advantage means that even if a country is not the most efficient producer of a certain product, it can still benefit from producing and exporting that product if it can do so at a relatively lower cost compared to other goods or compared to other countries. Therefore, the United States could still specialize in producing and exporting goods where it has a comparative advantage, and import other goods from other countries where they have a comparative advantage, leading to gains from trade. The high prices of domestic output would not necessarily stifle other countries' willingness to trade with the United States if the prices are still competitive when compared to other countries with similar costs of production. Trade restrictions or imposing a price ceiling on wages may not necessarily be beneficial to the economy, as it can lead to retaliation from trading partners, possible inefficiencies in production, and potential negative effects on the economy.

Suppose That High Wages in the United States Resulted in an Absolute