Question

Suppose that workers involved in manufacturing are paid less than all other workers in the economy. What would be the effect on the real income distribution within the economy if there were a substantial tariff levied on manufactured goods?

a) Increase in real income for manufacturing workers
b) Decrease in real income for manufacturing workers
c) Increase in real income for non-manufacturing workers
d) No impact on real income distribution

Answer 1

A substantial tariff on manufactured goods decreases real income for manufacturing workers and increases real income for non-manufacturing workers.

Step-by-step explanation:

The effect of a substantial tariff levied on manufactured goods on the real income distribution within the economy would be a decrease in real income for manufacturing workers and a increase in real income for non-manufacturing workers.

When a high tariff is placed on manufactured goods, it makes imported goods more expensive, causing a decrease in the demand for those goods. As a result, the demand for workers in the manufacturing industry decreases, leading to lower wages. On the other hand, non-manufacturing workers may benefit as the tariff can create a higher demand for domestically produced goods, increasing their wages.

Overall, the tariff has an impact on the income distribution by favoring non-manufacturing workers over manufacturing workers.