{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

This assumption is based on the idea that all economies trade on the open market

This assumption is based on the idea that all economies trade on the open market

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This assumption is based on the idea that all economies trade on the open market. If a  country that lags in productivity produces a good to sell on the international market, it  must price the good at the same level that more productive countries. In this case, the  only way for the lagging country to produce the good at a low price is to pay labor a low  wage. Thus, if labor receives a low wage, the workers are unable to provide or enjoy a  high standard of living.  Let's work this out through an example. Say that there is an international market for  widgets. The going price is $5 per widget. Most productive countries are able to produce  widgets and sell them for this price. One country, which is lagging in productivity, can  only produce widgets at half the speed of the other countries. But, because the lagging  country is only able to sell widgets at $5 each, it must reduce its costs of production. 
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern