If the wage-rental ratio in Japanese auto production is lower than the wage-rental ratio in U.S. auto production, then:
A) Japan must have a comparative advantage in the production of autos.
B) Japan must have an absolute advantage in the production of autos.
C) auto production costs must be lower in Japan than in the United States.
D) auto production costs could be lower in the United States if U.S. labor productivity is higher than Japanese labor productivity.

Question

Quizplus · Accepted Answer

The wage-rental ratio indicates the relative cost of labor to capital. A lower ratio in Japan suggests labor is cheaper relative to capital compared to the U.S. However, if U.S. labor productivity is higher, it could offset the higher wage-rental ratio, potentially making U.S. production costs lower.

If the Wage-Rental Ratio in Japanese Auto Production Is Lower