Solution:

Given:

- Rise in prices = 10%
- Increase in wages = 20%

To find:

- Real wage increase

Real wage increase formula:

Real wage increase = [(New wage - Old wage) / Old wage] x 100

Calculations:

Let us assume the old wage was Rs. 100

- Rise in prices = 10%

This means the new price will be 110% of the old price.

New price = Old price + (Old price x Rise in prices)
New price = 100 + (100 x 10%)
New price = 110

- Increase in wages = 20%

This means the new wage will be 120% of the old wage.

New wage = Old wage + (Old wage x Increase in wages)
New wage = 100 + (100 x 20%)
New wage = 120

- Real wage increase = ?

Real wage increase = [(New wage - Old wage) / Old wage] x 100
Real wage increase = [(120 - 100) / 100] x 100
Real wage increase = (20 / 100) x 100
Real wage increase = 20%

Therefore, the real wage increase is 20%.

Explanation:

- Rise in prices = 10%

This means the cost of living has increased by 10%.

- Increase in wages = 20%

To compensate for the rise in prices, the wages have been increased by 20%.

- Real wage increase = 20%

The real wage increase takes into account the rise in prices and the increase in wages. It tells us how much the purchasing power of the wages has increased or decreased. In this case, the real wage increase is 20% which means the purchasing power of the wages has increased by 20%.