Question

john smith, a factory worker at an automobile plant in the city detrigan, makes $25 per hour. his dad, larry smith who retired from a plant in the same city ten years back, was earning an average of $10 per hour at the time of retirement. looking at the cpi, john concludes that a factory workers purchasing power is lower now compared to ten years ago. larry, however, does not agree that purchasing power has fallen. according to him, this conclusion cannot be drawn from such limited data.
which of the following, if true, would weaken johns claim that the average factory workers purchasing power has fallen?
a. the bargaining power of labor unions has increased over the years.
b. with the removal of import barriers last year, cheaper and better - quality goods are now available in the country.
c. the average wage of a factory worker rose faster than the average wages of other categories of workers in the last ten years.
d. the statutory minimum wage was increased twice in the past ten years.
e. although wages are higher in factories in detrigan compared to other cities, the marginal productivity of a worker is also high.

Explanation:

• Option A: The bargaining power of labor unions increasing doesn't directly relate to purchasing power. Purchasing power is about what workers can buy with their income, not union - bargaining strength.
• Option B: If cheaper and better - quality goods are available, even if nominal wages have increased (from $10 to $25), the real purchasing power (which is about what can be bought) could be higher. This weakens John's claim that purchasing power has fallen.
• Option C: Comparing factory worker wages to other workers' wages doesn't address the core issue of purchasing power (which is about the relationship between income and the cost and availability of goods).
• Option D: Increasing the statutory minimum wage doesn't necessarily mean purchasing power has increased. It depends on price levels.
• Option E: Comparing Detrigan factory wages to other cities and marginal productivity has no bearing on the purchasing power over a ten - year period in Detrigan.

Answer:

B. With the removal of import barriers last year, cheaper and better - quality goods are now available in the country.