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Initially, Workers in the Shoe Industry and the Computer Industry

question 74

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Initially, workers in the shoe industry and the computer industry earn the same wage. Reductions in trade barriers give domestic consumers access to cheaper shoes produced abroad, so domestic shoe prices fall. At the same time, foreign consumers purchase more computers, raising the relative price of computers. As a result of these changes, wages in the shoe industry ________ and wages in the computer industry ________.


Definitions:

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption or wear and tear.

Exchange Rates

The price of one currency in terms of another currency, which determines how much of one currency can be exchanged for another.

Balance Sheet

A financial report detailing a company's assets, liabilities, and equity held by shareholders at a particular moment.

Functional Currency

The main form of money used in the main economic setting where a business functions, as reported in its financial documents.

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