Suppose that Northern Ireland and Southern Ireland each have 1,000 hours of labor per day.Southern workers are paid €1 per day and Northern workers are paid £1 per day.What is the approximate exchange rate associated with an international price of one keg of beer = 1 bottle of whiskey?
Now suppose that Southern workers receive a raise to €2 per day.Will trade be possible at the exchange rate you found?

Question

Quizplus · Accepted Answer

The initial exchange rate is based on the relative wages and productivity, but if Southern workers receive a raise, the cost structure changes, potentially affecting the feasibility of trade at the previous exchange rate.

Suppose That Northern Ireland and Southern Ireland Each Have 1,000