In the short run,wages in the home country will ________ when a company outsources its operations because labor demand in the home country has ________.
A) rise; risen
B) stay the same; fallen
C) double; risen
D) fall by a third; risen
E) fall; fallen

Question

Quizplus · Accepted Answer

When a company outsources its operations, it means that it is shifting its production to a country where labor is cheaper. This will increase the supply of labor in the foreign country, which will drive down the wage rate. In the home country, the demand for labor will decrease as production is shifted abroad. This decrease in demand for labor will cause a decrease in the wage rate in the short run. Therefore, option E is the correct answer.

In the Short Run,wages in the Home Country Will ________