Suppose demand conditions in industries X and Y are identical but that productivity increases by 5% in industry X and 2% in industry Y.If economy-wide productivity and the average wage each rise by 3%,we should expect that:

Question

Quizplus · Accepted Answer

With the increase in productivity by 5% in industry X and 2% in industry Y, we can expect that output and employment in X will increase relative to Y. Additionally, with economy-wide productivity and average wage rising by 3%, the relative increase in productivity in industry X will lead to a higher increase in output and employment compared to industry Y. Therefore, A is the correct answer.

Suppose Demand Conditions in Industries X and Y Are Identical