Question

Explain how the opening of trade can lead to an increase in money wages in a capitalabundant country if capital is immobile between sectors. Does this mean that labor is necessarily beter off with trade

Answer 1

Opening for trade leads the country to raise the country production in the economy. This will lead the firms and workers in those firms to work more and have a comparative advantage of the trade. When trade is increasing it will lead the wages in the country to increase due to demand for goods in other countries.

When country which is capital abundant but the capital is immobile between sector there will be only development in those few sectors and only those sectors participate in trade. So country is trying to produce goods and services in those particular sector to have comparative advantage of the trade as they can produce goods in those sectors at low opportunity cost.

So when the trade in going on workers who work and produce more which be the choice for employers which increases the demand for labour in market thus increasing wages. So labour are been necessarily better off with trade.