In the context of the Classical/Ricardo model, suppose that, in an industry X, the Productivity of U.S. workers is three times the productivity of Chinese workers. At the same time, suppose that the wage rate paid to Chinese workers is 20% of the wage rate paid to U.S. workers. In this situation, the unit labor cost of producing good X would be __________ in China than in the United States and therefore, in this two-country Classical/Ricardo context, __________.
A) lower; China would export good X to the United States
B) lower; the United States would export good X to China
C) higher; China would export good X to the United States
D) higher; the United States would export good X to China

Question

Quizplus · Accepted Answer

The unit labor cost is calculated by dividing the wage rate by productivity. Even though U.S. workers are three times as productive, their wage rate is five times higher than that of Chinese workers (100% vs. 20%). This means the unit labor cost in China is lower, making China more competitive in producing good X, leading to China exporting good X to the United States.

In the Context of the Classical/Ricardo Model, Suppose That, in an Industry