A change in the relative price of one good versus another will cause a change in marginal product and the allocation of labor resources. When the price of good A increases relative to the price of good B and labor is mobile, the equilibrium real wage in industry A will:
A) rise in terms of good B.
B) fall in terms of good B.
C) remain the same.
D) rise in terms of good A.

Question

Quizplus · Accepted Answer

When the price of good A increases relative to the price of good B and labor is mobile, workers will move from producing good B to producing good A to take advantage of the higher prices and potentially higher wages. This increased demand for labor in industry A will drive up the real wage in terms of good B, as workers can now buy more of good B with their wages from industry A.

A Change in the Relative Price of One Good Versus