📚 Learning Guide
Real Wages and Exports Impact
hard

How does an increase in real wages typically affect exports in a market equilibrium context?

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Learning Path

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Choose the Best Answer

A

Exports increase due to higher production costs

B

Exports decrease as domestic goods become more expensive

C

Exports remain unchanged regardless of wage changes

D

Exports increase as workers have more disposable income

Understanding the Answer

Let's break down why this is correct

Answer

When real wages increase, workers earn more money after adjusting for inflation. This can lead to higher production costs for businesses, as they may need to pay their employees more. As a result, if companies raise their prices to cover these costs, their goods may become more expensive compared to products from other countries. This can make exports less attractive to foreign buyers, leading to a decrease in the quantity of goods sold abroad. For example, if a country's electronics become pricier due to higher wages, consumers in other countries might choose to buy cheaper electronics from competitors instead.

Detailed Explanation

When real wages go up, it costs more to make goods. Other options are incorrect because Some might think higher costs lead to more exports; It's a common belief that wages don't affect exports.

Key Concepts

real wages
exports
market equilibrium
Topic

Real Wages and Exports Impact

Difficulty

hard level question

Cognitive Level

understand

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