Macroland: Impact of Trade on Wages

What is the impact of foreign trade on wages in Macroland?

Assuming workers cannot move between industries, the wages of workers producing dishes will ___ and the wages of workers producing glasses will ___

Answer:

Assuming workers cannot move between industries, the wages of workers producing dishes will increase and the wages of workers producing glasses will decrease.

Wages refer to the payment or compensation that employees receive for their work. In the case of Macroland, the impact of foreign trade on wages is evident based on the changes in prices of dishes and glasses.

With the opening of trade and the strong foreign demand for domestically produced china, the price of a set of dishes has increased from $100 to $125. This increase suggests that there is a higher demand for food and indicates that business is thriving. As a result, the wages of workers producing dishes are likely to increase due to the greater demand and higher prices for the product they make.

On the other hand, due to foreign competition reducing the demand for domestically produced glasses, the price of a set of glasses has decreased from $50 to $25. This decline signifies that the market for glasses is becoming less lucrative and in lower demand. Consequently, the wages of workers producing glasses are expected to decrease as the product they manufacture is facing reduced demand and lower prices.

Therefore, the impact of foreign trade on wages in Macroland is such that workers producing dishes will experience an increase in wages, while workers producing glasses will likely see a decrease in their wages.