Suppose that the Home country in the twosector
(manufacturing and agriculture) specificfactors model
Has a comparative advantage in manufactured output.
Will workers be better or worse off following the opening
Of trade with other countries?
A)Workers will be better off because the nominal wage increases.
B)Workers will be worse off because the nominal wage decreases.
C)Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the
Real wage in terms of the manufactured good falls.
D)Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the
Real wage in terms of the manufactured good rises.

Question

Suppose that the Home country in the two­sector
(manufacturing and agriculture) specific­factors model
Has a comparative advantage in manufactured output.
Will workers be better or worse off following the opening
Of trade with other countries?
A)Workers will be better off because the nominal wage increases.
B)Workers will be worse off because the nominal wage decreases.
C)Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the
Real wage in terms of the manufactured good falls.
D)Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the
Real wage in terms of the manufactured good rises.

Quizplus · Accepted Answer

In the specific-factors model, when the home country has a comparative advantage in manufacturing, opening trade will lead to an increase in the relative price of manufacturing goods. As a result, the real wage in terms of the agricultural good will rise and the real wage in terms of the manufactured good will fall. Therefore, workers may be better off or worse off depending on their sector of employment. Those who work in agriculture will benefit from the increase in real wage, while those who work in manufacturing will experience a decrease in real wage. Overall, the effect on workers cannot be determined with certainty without more information about the specific factors of production and their mobility between sectors.

Suppose That the Home Country in the Two­sector

Suppose That the Home Country in the Twosector