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?