For a product that is traded internationally, with low trade costs, such as a DVD player, competition dictates that workers involved in manufacturing that good will:
A) probably not get the full value of their marginal products.
B) earn higher wages if trade does not force them to compete with low-cost foreign workers.
C) earn wages that are determined by their productivity.
D) lose their jobs if there are higher international product standards.

Question

Quizplus · Accepted Answer

With low trade costs and international competition for a product like a DVD player, the workers involved in manufacturing that good will likely earn wages that are determined by their productivity. This is because the market will force firms to keep wages in line with the value that each worker contributes to the production process. Workers who are more productive will be paid more, while those who are less productive may lose their jobs. While trade may lead to some downward pressure on wages if workers are competing with low-cost foreign workers, the overall effect is likely to be a more productive and efficient economy. There is no indication that workers will not get the full value of their marginal products or that they will lose their jobs due to higher international product standards.

For a Product That Is Traded Internationally, with Low Trade