The United States and China can produce TVs at $200 and 2000 yuan each. One day of labor is needed to produce a TV in the United States and 10 days of labor are needed to produce a TV in China. Each country also produces the nontraded good, car washing. In each country, one car can be washed in one day. The exchange rate is 10 yuan = $1. What is the ratio of U.S. to Chinese daily wages, with both expressed in dollars at the 10 yuan = $1 exchange rate?

Question

Quizplus · Accepted Answer

The ratio of U.S. to Chinese daily wages, expressed in dollars, is 10:1. In the U.S., one day of labor produces a TV worth $200. In China, 10 days of labor are needed to produce a TV worth 2000 yuan, or $200 at the exchange rate of 10 yuan = $1. Therefore, one day of labor in China produces a TV worth $20. The ratio of U.S. daily wage ($200) to Chinese daily wage ($20) is 10:1.

The United States and China Can Produce TVs at $200