Question

n the two-sector (manufacturing and agriculture) specific-factors model, suppose that a country has a comparative advantage in manufacturing output. Will workers be better or worse off following the opening of trade with other countries? Group of answer choices Workers will be better off because both nominal and real wages increase. Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises. Workers will be better off because the nominal wage increases. Workers may be better off or worse off because the real wage in terms of the agricultural good rises and the real wage in terms of the manufactured good falls.

Answer 1

Workers may be better off or worse off because the real wage in terms of the agricultural good falls and the real wage in terms of the manufactured good rises.

Step-by-step explanation:

Because the country has comparative advantage in manufacturing, opening to trade means that the manufacturing sector will grow because it will now export goods to other parts of the world. This will increase the real wages of manufacturing workers.

However, the country does not have a comparative advantage in agriculture, and this means that the agricultural sector will likely shrink, because consumers will be able to access cheaper and higher quality agricultural goods from other regions. This will cause agricultural workers' wages to fall.