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Monday, October 13, 2008

population and real wages

On CNN today:

The article of Paul Krugman (Nobel Prize, 2008) outlined "a new theory of economic geography. Krugman's idea was that if two countries were exactly alike, except one had a larger population, real wages would be somewhat higher in the more populous country because companies there could make better use of economies of scale, creating a greater diversity of goods, lower prices, or both.

Because this enhances the welfare of consumers in that country, its population would increase as more people moved there, which would lead to additional increases in real wages."

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