Consider two countries, Vietnam and China, producing two goods, textile and tele
ID: 2506239 • Letter: C
Question
Consider two countries, Vietnam and China, producing two goods, textile and televisions. Suppose that textile is relatively labor-intensive. Vietnam has 20 units of capital and 16 units of labor and China has 300 units of capital and 150 units of labor. Use diagrams to help illustrate your answers.
a. Which country is relatively capital-abundant? Explain.
b. Which country will export textile? Explain.
c. In Vietnam the production of which good decreases under trade? In China?
d. In China, is the relative price of televisions higher under free trade or no trade? Explain. e. Which group benefits from trade in China? In Vietnam?
Explanation / Answer
1) China, 300/150 > 20/16
2) Vietnam, as they have relatively more labour than capital, i.e 16/20 > 150/300
3) TV in vietnam and textile in china
4) relative price of TVs is higher with free trade as TVs are exported if there is free trade.
5) From Trade TV benefits in china and textile in vietnam