Macroland produces dishes and glassware. Before trade, a set of dishes sells for $100 and a set of glasses sells for $50. When Macroland opens to trade, foreign demand for domestically produced china is strong, raising the price of a set of dishes to $125. But foreign competition reduces the demand for domestically produced glasses, so that they now sell for $25 a set. Assuming workers cannot move between industries, the wages of workers producing dishes will ______ and the wages of workers producing glasses will ____.
A) increase; increase
B) increase; not change
C) increase; decrease
D) decrease; increase

Question

Quizplus · Accepted Answer

Strong foreign demand for dishes leads to an increase in the price of the product. This increase in price will lead to increased demand for labor, which will raise the wages of the workers producing dishes. On the other hand, foreign competition in the glass industry reduces the price of glasses, reducing the demand for labor in that industry. This decline in demand for labor in the glass industry will lead to a decrease in the wages of the workers producing glasses. Therefore, the wages of workers producing dishes will increase while the wages of workers producing glasses will decrease.

Macroland Produces Dishes and Glassware