Question

7. Recently, a growing labor shortage has been causing Chinese wages to rise. If this trend continues, there is a possibility that the external economy industries currently dominated by China may shift to Vietnam. In this light, consider the situation illustrated in Slide 70.

a. How would AC_China shift (i.e., upward or downward) due to the rise in wages?

b. If P₁ continues to denote the price of Chinese buttons, what condition between P₁ and C₀ must be satisfied for button production to remain in China?

Answer 1