Consider an economy with two industries: auto manufacturing andaircraft manufacturing.
a. If workers in these two industriesrequire similar amounts of training, and if workers at thebeginning of their careers could choose which industry to trainfor, what would you expect to happen to the wages in these twoindustries? How long would this process take? Explain?
b. Suppose that one day the economyopens itself to international trade and as a result, startsimporting autos and exporting aircraft. What would happen to demandfor labor in these two industries? And as a result, what wouldhappen to the wages in these two industries in the short run?
c. Do you think that the wagedifferential between these industries will continue over the longertime horizon? What would happen to the wages in these industries inthe long term period? Explain.
