Answer questions on the basis of the following diagram. Assume all migration is costless.

-If wages are initially $10 in country X and $25 in country Y,then we should expect a relative price advantage in country:
A)X,eventually resulting in greater export sales to Y and thus greater derived demand for labor in X
B)Y,eventually resulting in greater export sales to X and thus greater derived demand for labor in Y
C)X,eventually resulting in greater imports from Y thus greater derived demand for labor in X
D)Y,eventually resulting in greater imports from X and thus greater derived demand for labor in Y

Question

Answer questions on the basis of the following diagram. Assume all migration is costless.

-If wages are initially $10 in country X and $25 in country Y,then we should expect a relative price advantage in country:
A)X,eventually resulting in greater export sales to Y and thus greater derived demand for labor in X 
B)Y,eventually resulting in greater export sales to X and thus greater derived demand for labor in Y 
C)X,eventually resulting in greater imports from Y thus greater derived demand for labor in X 
D)Y,eventually resulting in greater imports from X and thus greater derived demand for labor in Y

Quizplus · Accepted Answer

According to the diagram, the wage in country X will increase as workers migrate to country Y, while the wage in country Y will decrease as workers migrate to country X. This means that the relative price advantage will eventually be in country X, as the cost of producing goods in country Y will increase due to the increasing wage rate. As a result, we should expect greater export sales from X to Y, which will in turn create a greater derived demand for labor in X.

Answer Questions on the Basis of the Following Diagram