2. American workers receive higher wages in the production of automobiles than Chinese workers do. Use...
2. American workers receive higher wages in the production of automobiles than Chinese workers do. Use the Ricardian model to explain this phenomenon.
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Homework Answers
As per the Ricardian model of comparative advantage, a country
produces and specializes in the production of the good it has lower
opportunity cost in (or, has comparative advantage).
In the case of automobiles, US has a lower opportunity cost and thus comparative advantage in the production of automobiles, as compared to China.
This means US specializes in the production of automobiles and exports them to China.
As a result of high production, demand for workers to produce more automobiles also increases.
Keeping supply unchanged, an increase in the demand for workers to produce automobiles shifts the demand curve to the left, leading to an increase in the wages of the workers who produce automobiles in US.
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2. American workers receive higher wages in the production of
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