Question

Consider the relative supply curves for a capital-intensive good, such as computers, with respect to a labour-intensive good, such as textiles. Assume that China is relatively capital-abundant compared to Vietnam. Why is China's relative supply curve to the right of Vietnam's?

A. For any given relative goods price, and therefore any given relative factor prices, China produces relatively more of the good that uses capital intensively.

B. At any given goods prices, China's labour productivity is greater and therefore China specializes in computers.

C. For any given relative goods price, and therefore any given relative factor prices, China produces relatively more of the good that uses labour intensively

D. China possesses a larger endowment of computers at any given set of factor prices.

Answer 1

Given, the relative supply curves for a capital-intensive good, such as computers, with respect to a labour-intensive good, such as textiles. Now if we assume that China is relatively capital-abundant compared to Vietnam. This means that capital is caheap and is available in abundant quantity in China, this means that China can produce capital abundant commodity i.e. computers more than Vietnam. So its supply curve is to the right of Vietnam.

So the correct answer is option- A. For any given relative goods price, and therefore any given relative factor prices, China produces relatively more of the good that uses capital intensively.

This means that whatever the relative price of good or factor may be, China will produce more of goods that uses capital intensively because China is a capital abundant country and hence it will also supply more of capital intensive goods.