As the country opens up to trade, the amount of labor in the agricultural sector will...

As the country opens up to trade, the amount of labor in the agricultural sector will ---------------------, and the amount of labor in the manufacturing sector will ----------------. Similarly, the amount of capital in the manufacturing sector will -------------------------, and the amount of land in the agricultural sector will --------------. (Expected answers: "increase", "decrease", or "stay the same".)

Given your answer to the previous question, after trade liberalization, the labor/capital ratio in the manufacturing sector will-------------- , and the labor/land ratio in the agricultural sector will --------------. (Expected answers: "increase", "decrease", or "stay the same".)

Given your answer to the previous question, after trade liberalization the return on capital in the manufacturing industry will -------------. Similarly, the return on land in the agricultural sector will ----------------. (Expected answers: "increase", "decrease", or "stay the same".)

What will happen to the real wage earned by workers based on your answers to the previous questions?

Solutions

Expert Solution

Answer: if country opens up to trade, there will be increase in demand of labor to produce more goods and services. if there are two sectors in the economy agriculture and manufacturing sector and country have comparative advantage in agriculture sector than:

Amount of labor in agriculture will increase while in manufacturing sector it will decrease. Amount of capital in manufacturing will decrease while amount of land in agriculture will increase.

Labor/ capital ratio will decrease in manufacturing sector while labor/land ratio will increase in agriculture sector.

The return on capital in manufacturing sector will decrease while return on land will increase in agriculture sector.

If the country faces comparative advantage in manufacturing sector than:

Amount of labor in agriculture will decrease while in manufacturing sector it will increase. Amount of capital in manufacturing will increase while amount of land in agriculture will decrease.

Labor/ capital ratio will increase in manufacturing sector while labor/land ratio will decrease in agriculture sector.

The return on capital in manufacturing sector will increase while return on land will decrease in agriculture sector.

Answer: the real wage earned by the workers will increase as with opening to trade the demand for labor will increase in the country

Rahul Sunny answered 1 year ago

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