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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Is international trade likely to have about the same effect on everyone’s wages?

To determine

Whether international trade is likely to have about the same effect on everyone’s wages.

Explanation

International trade is the exchange of goods and services across borders. International trade raises the production potential of a country since it helps firms and labor to exploit their comparative advantage. Workers who are more productive are more desirable in the labor market. Thus, the demand for labor increases leading to increase in the average wages in the labor market. Although trade increases the level of average wages in the economy, it does not mean an increase in wages of every worker because trade benefits some and hurts some.

This can be explained as follows:

When a country engages in international trade, it produces and exports the good in which it has comparative advantage and imports the good in which it has comparative disadvantage. Now, trade increases the production of the good that the country is exporting because export demand of that good increases...

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