As trade occurs, increased imports will force domestic
Importcompeting firms to decrease price and production.
Labor and capital will move to exporting firms.What will
Then happen to wages and returns to capital?

Question

As trade occurs, increased imports will force domestic
Import­competing firms to decrease price and production.
Labor and capital will move to exporting firms.What will
Then happen to wages and returns to capital?

Quizplus · Accepted Answer

As import-competing firms decrease price and production, it will lead to a decrease in demand for labor, leading to a drop in wages. However, as capital moves to exporting firms, it will increase the demand for capital, leading to an increase in returns to capital. Therefore, wages will decrease while returns to capital will increase.

As Trade Occurs, Increased Imports Will Force Domestic