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Recall the example of the U.S. and Chinese worker:U.S. WorkerChinese WorkerAssembly20,000 ...

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Recall the example of the U.S. and Chinese worker:U.S. WorkerChinese WorkerAssembly20,000 ...

Recall the example of the U.S. and Chinese worker:

	U.S. Worker	Chinese Worker
Assembly	20,000 iPhone/year	5,000 iPhones/year
R&D	10 innovations/ year	1 innovation/ year

Assume that prices are $1.50 per iPhone and $5,000 per innovation (i.e., so that U.S. and Chinese Workers specialize in their respective comparative advantages).

Now, due to investments in human capital, China's productivity in R&D doubles so that a Chinese worker can now produce 2 innovations/ year. Which of the following might happen to prices (assuming that U.S. and Chinese workers continue to specialize in their comparative advantages)?

▸ The price of innovation falls to $3,500 / innovation and the price of iPhones falls to $1 / iPhone.

▸ The price of innovations falls to $3,500 / innovation.

▸ There will be no change in prices.

▸ The price of iPhones falls to $1 / iPod.

Textbook

Macroeconomics

Edition: 3^rd

Authors: Acemoglu, Laibson, List

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