Reference no: EM132417116

1. Country A has a large pool of skilled workers earning $50 per hour and a small pool of unskilled workers earning $18 per hour. Country B has a small pool of skilled workers earning $60 per hour and a large pool of unskilled workers earning $8 per hour. Trade theory predicts that if A and B engage in international trade with each other,

a) real wages paid to skilled workers will fall in A

b) unskilled wages will become more unequal between A and B

c) real incomes will become more equal within B

d) the wages of unskilled workers in B will fall

e) wages to all workers in both countries will rise

I believe the answer to be C because trade will ultimately cause labor to migrate towards those unskilled in Country B which will result in the unskilled labor equilibrium rate increasing. This will be countered on the skilled workers side where Country B's technical workers hourly pay should decrease otherwise Country A would gain more of the technically skilled high paying jobs through trade because the hourly labor cost is cheaper. This would lead to skilled labor decreasing to match County A.