Question

Wealthy country A enters into a free trade agreement with poor country B. Country B improves its productivity. Country A pays lower prices for goods imported from poor country B. However, Samuelson expresses concern that these lower prices may not offset possible ______ in wealthy country A.

Answer 1

lower real wage rates

Step-by-step explanation:

The answer is --

"lower real wage rates".

At least two or more countries involved in free trade agreement where the quality of the trade relation between the countries are improved. There is mutual cooperation between the two countries to lower the trade barriers reduce the tariffs and trade quotas, etc.

Free trade means more growth and rise in economy but it affects the wage rates. There are more skilled labors in the rich country compared to a poor country. Therefore the free trade will increase the wages of the skilled labor whereas it will decrease the wages of the unskilled labor. This theory is given by Stolper-Samuelson.

Therefore in the context, the rich country A importing goods at lower price will not offset the claim of lower the wages rates in the country.

Hence the answer is --

"lower real wage rates".