Question

question 16 of 16
international trade — end of chapter problem
you are thinking of purchasing a new shirt for $5 that has a \made in indonesia\ tag on it. youre shopping with a friend who mentions how terrible working conditions are for textile workers in indonesia, and says, \if theyd only charge $10 for their shirts, then all the sweatshop workers would be so much better off.\
why might your friends argument be flawed?
the higher price would probably cause □ in □, leading to a reduction in output and employment in the indonesian textile industry.

Explanation:

To determine the flaws in the friend's argument, we analyze the economic principle of demand. When the price of a good (shirts, in this case) increases, according to the law of demand, the quantity demanded by consumers (in the market where these shirts are sold, likely the U.S. or other importing countries) will decrease. A decrease in quantity demanded means that buyers will purchase fewer shirts. For the Indonesian textile industry, which supplies these shirts, a lower quantity demanded from the market will lead to a reduction in how many shirts they need to produce (output) and, consequently, how many workers they need to employ (employment). So the first blank relates to the change in quantity demanded (a decrease) and the second blank is about the market for these shirts (quantity demanded in the importing country's market, e.g., U.S. demand for Indonesian shirts).

Answer:

The higher price would probably cause a decrease in quantity demanded, leading to a reduction in output and employment in the Indonesian textile industry.

(For the blanks: first blank - "a decrease", second blank - "quantity demanded" (or more specifically, "the quantity demanded of Indonesian shirts in the importing market" but the key economic concept is quantity demanded decreasing))