Suppose (Pc/Pf) is lower in India as compared to the US. Thus, relatively worker in ______ industry in India will be ______ than a worker in the same industry in the US. none of the available choices are correct. food; more clothing; more clothing; less.
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The United States is increasingly outsourcing jobs to India: having the work done in India rather than in the United States. For example, the Indian firm Tata Consultancy Services, which provides information technology services, increased its workforce by 70,000 workers in 2010 and expected to add 60,000 more in 2011 ("Outsourcing Firm Hiring 60,000 Workers in India," San Francisco Chronicle, June 16,2011 ). As a result of increased outsourcing, wages of some groups of Indian skilled workers have increased substantially over the years. Use a supplyand-demand diagram to explain this outcome.
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With inferior goods (like ramen noodles), the income effect works in the opposite direction from the income effect discussed in the text. If a consumer feels richer, she would buy less of an inferior good. If she feels poorer, she would buy more. a. Suppose that a consumer eats two different foods: potatoes and meat. Potatoes are inferior and meat is a luxury. Describe both the income and substitution effects on the consumer's optimal choice of potatoes and meat if the price of potatoes were to rise. Put the two effects together. What can you conclude? b. What if you knew for sure that the substitution effect dominated the income effect? What would happen to the consumer's optimal choices for potatoes and meat? c. What if instead you knew that the income effect dominated the substitution effect? What would happen in this case? Why is this result a bit unusual?
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