In This Example, Assume That Both Trade and Production Factors

question 87

Multiple Choice

In this example, assume that both trade and production factors are internationally mobile.Using domestic labor, the labor cost per silicon chip is $.10 in Japan and $.20 in the United States.Using domestic capital, the capital cost per chip is $.10 in Japan and $.05 in the United States.Chip transportation in either direction is $.10.Japanese labor is willing to work in the United States for $.15 per chip including the workers' transport cost.U.S.capital will go to Japan at a cost of $.08 per chip including transaction costs.Which silicon chips will the United States buy?

• A)those made in Japan with Japanese labor and capital
• B)those made in the United States with U.S. labor and capital
• C)those made in Japan with Japanese labor and U.S. capital
• D)those made in the United States with Japanese labor and U.S. capital

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Definitions:

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