Question: Starting from equilibrium in the specificfactors model, suppose the price of manufactured goods falls so that wages fall from W′ to W in Figure.
a. Show that the percentage fall in the wage is less than the percentage fall in the price of manufacturing so that the real wage of labor in terms of manufactured goods goes up.
b. What happens to the real wage of labor in terms of agriculture?
c. Are workers better off, worse off, or is the outcome ambiguous?
