SCENARIO: TRADE IN GOODS BETWEEN CHINA
AND THE UNITED STATES
(1) China has 1,000 units of capital and 3,000
Workers; (2) the United States has 3,000 units of
Capital and 1,000 workers; (3) clothing production is
Labor intensive, and (4) chemical production is capital
Intensive.
Reference: Ref 51
(Scenario: Trade in Goods Between China and the
United States) Suppose that the United States
Eliminates all restrictions on immigration and Chinese
Workers are free to emigrate from China to the United
States.How many Chinese workers must emigrate
From China to the United States in order for factor
Price equalization to occur?

Question

SCENARIO: TRADE IN GOODS BETWEEN CHINA
AND THE UNITED STATES
(1) China has 1,000 units of capital and 3,000
Workers; (2) the United States has 3,000 units of
Capital and 1,000 workers; (3) clothing production is
Labor intensive, and (4) chemical production is capital
Intensive.
Reference: Ref 5­1
(Scenario: Trade in Goods Between China and the
United States) Suppose that the United States
Eliminates all restrictions on immigration and Chinese
Workers are free to emigrate from China to the United
States.How many Chinese workers must emigrate
From China to the United States in order for factor
Price equalization to occur?

Quizplus · Accepted Answer

Factor price equalization occurs when wages and returns to capital are equalized between countries. In this scenario, clothing production is labor-intensive, and chemical production is capital-intensive. If Chinese workers are free to emigrate to the United States, the United States will experience an increase in the supply of labor, which will lower wages. Conversely, China will experience a decrease in the supply of labor, which will raise wages. Therefore, in order for factor price equalization to occur, enough Chinese workers must emigrate to the United States until wages in both countries are equalized. Since China has 3,000 workers and the US has 1,000, if 2,000 Chinese workers emigrate to the US, both countries will have 3,000 workers, and wages will be equalized. Therefore, the best choice is B.