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Which goods will be produced and exported by us

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Reference no: EM13157916

Consider a two country world (US and China) with only one factor of production, i.e. labour, and assume they both can produce 5 goods with the unit labour requirements provided in the table below:

Good     US

Unit labour requirement (uLi) China

Unit labour requirement (uLi*)

Cars                  6              50

Computer           7              63

Books                9              45

Toy                  75           15

Cellphones         60           10

a) If the relative wage (w/w*) for US is 6, then which goods will be produced and exported by US and China respectively, and why?

b) If the relative wage (w/w*) for US decreases to 5 due to productivity changes, which country would now be the exporter of books, and why?

Reference no: EM13157916

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