If we consider the two-sector (manufacturing and agriculture) specific-factors model, the effect of an increase in exports on the real wages of workers:
A) is inconclusive because some goods' prices will be higher compared with the wage, and some will be lower.
B) absolutely increases the buying power of the real wage.
C) absolutely decreases the buying power of the real wage.
D) will encourage foreign workers to emigrate to the United States.

Question

Quizplus · Accepted Answer

In the two-sector specific-factors model, an increase in exports in one sector will increase the demand for the specific factor used in that sector and therefore increase the price of that factor. In this case, an increase in exports of manufactured goods will increase the demand for manufacturing-specific factors and increase the price of those factors relative to the wage. This will decrease the real wage of workers in the manufacturing sector. On the other hand, an increase in exports of agricultural goods will increase the demand for agricultural-specific factors and increase the price of those factors relative to the wage. This will increase the real wage of workers in the agricultural sector. Thus, the overall effect on the real wages of workers is inconclusive as some goods' prices will be higher compared with the wage, and some will be lower.

If We Consider the Two-Sector (Manufacturing and Agriculture) Specific-Factors Model