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 in the question before the last question?
A)Yes
B)No

Question

Quizplus · Accepted Answer

With the new wage rates, the exchange rate should shift to accommodate the changes in relative prices. However, it does not change here, as a €1 is equivalent to £1. Thus, there is no incentive for Southern workers to trade as they earn the same amount as they would if they did not trade. Hence, trade would not be possible at the current exchange rate.

Now Suppose That Southern Workers Are Paid €1 Per Day