Initially, workers in the shoe industry and the computer industry earn the same wage. Reductions in trade barriers give domestic consumers access to cheaper shoes produced abroad, so domestic shoe prices fall. At the same time, foreign consumers purchase more computers, raising the relative price of computers. As a result of these changes, the demand for labor in the shoe industry ______ and the demand for labor in the computer industry ______.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question

Quizplus · Accepted Answer

The reduction in trade barriers and access to cheaper shoes from abroad would lead to a decrease in demand for labor in the shoe industry due to lower domestic prices. Conversely, the increase in foreign demand for computers would raise the relative price of computers, leading to an increase in demand for labor in the computer industry. Therefore, the demand for labor in the shoe industry decreases while the demand for labor in the computer industry increases.

Initially, Workers in the Shoe Industry and the Computer Industry