Mark the correct answer and explain why an asymmetric shift in demand away from

Question

Mark the correct answer and explain why an asymmetric shift in demand away from country A to a trading partner country B will lead to inflationary tendencies in country B when there is (a) high, or (b) low labour mobility. Mark the correct answer and explain why an asymmetric shift in demand away from country A to a trading partner country B will lead to inflationary tendencies in country B when there is (a) high, or (b) low labour mobility. Mark the correct answer and explain why an asymmetric shift in demand away from country A to a trading partner country B will lead to inflationary tendencies in country B when there is (a) high, or (b) low labour mobility.

Explanation / Answer

The correct answer is (b). As the demand shifts from country A to country B, the demand In country B rises. To fulfill this increased demand, the number of labourers should increase in order to produce more goods. Due to low labour mobility from country A to country B, the supply cannot match the increased demand. To curb the excess demand and earn profits from the same, the suppliers increase the price of the commodity sold as due to deficient supply consumers will be ready to pay a higher price to buy the commodity. Hence, it will lead to inflationary tendencies in country B.

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