7. If the wage–rental ratio in Japanese auto production is lower than the wage–r

Question

7. 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. 7. 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.

Explanation / Answer

"A"

if the wage-rental ratio is lower in Japan then the Japanese will have a comparative advantage in the production of Autos.

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