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 are paid €1 per day but the Northern workers receive a raise to £2 per day.Will trade be possible at the exchange rate you found?

Question

Quizplus · Accepted Answer

Trade will not be possible at the same exchange rate because the cost structure has changed with the increase in Northern workers' wages, affecting the relative prices of goods.

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