Q1. [1] medium thorough-understanding
Which of the following best explains why MNCs are able to earn large profits from global supply chains while workers at the bottom of the chain remain poorly paid?
((A)) MNCs pay higher taxes, leaving less for workers
((B)) Competition among producers forces them to cut labour costs, reducing workers' wages and benefits
((C)) Workers in developing countries prefer low wages in exchange for job security
((D)) MNCs directly set the wages of workers in all countries they operate in
- A MNCs pay Indian exporters very high prices, but exporters keep the money for themselves.
- B MNCs use their global network to seek the cheapest suppliers, pushing exporters to minimise labour costs, so the gains from trade flow upward to MNCs rather than to workers.
- C Indian workers are unskilled and therefore not entitled to higher wages under WTO rules.
- D The Indian government sets a maximum wage limit for export-sector workers to keep exports competitive.
Generated by claude-sonnet-4-6 · 2026-06-26 13:29 · grounding rag
Model Answer
Answer: B
MNCs use their global network to seek the cheapest suppliers, pushing exporters to minimise labour costs, so the gains from trade flow upward to MNCs rather than to workers.
Explanation
The passage on "Competition and Uncertain Employment" directly states that large MNCs look for the cheapest goods to maximise profits, forcing Indian exporters to cut labour costs by hiring temporary workers at low wages. This matches Option B perfectly. Options A, C, and D are factually incorrect as per the textbook — the government does not set maximum wages for export workers, WTO rules are not mentioned, and MNCs do not directly set wages in all countries.