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Microeconomics Question from Walter E. Williams:Edit

"Evaluate. 'Chinese labor is far less productive than American labor as evidenced by the fact that it takes so much of it to get jobs done. One the other hand, American wheat land is less fertile than wheat land in Europe (e.g., France) as evidenced by the lower yield per acre in the United States.' "

AnswerEdit

Incorrect because the inputs (labor for China, land for the US) are not fixed, ie less scarce. Thus the costs to improve exceeds the costs to add units.

The Marginal productivity of labor is affected by the level of capital per worker. Consider the relative cost of each in these situations. Chinese labor is cheap enough to couple it with less capital investment. True, the output will be lower per person. Even more, the relative opportunity costs of those same type workers in America is higher. This type of cheap labor is not available (costs of living, minimum wage, etc). It therefore induces more capital investment which makes the productivity per worker higher in the US.

Large amounts of American farm land is devoted to the raising of wheat (for historic, strategic, and union reasons). This land has a low opportunity cost relative to the more fertile land in Europe, which becasue of geographic conditions is suitable for growing more valuable crops (such as wine in France). The sheer number of acres of land in the US make it more likely that the average productivity of a unit of land brought into production will be less than the land in Europe. Land that is used in Europe has a high opportunity cost and must be the kind of high yeild land which will be worthy of this effort. In a place like the Czech, lots of capital can be devoted to growing wheat in high yeild ways. Since land is scarce the average yeild is expected to be higher. In the US it is more likely that land will be kept in production of wheat because land is less scarce.

(Note: growing rice in Japan is possible because of the government. While there would be some demand for domestic rice grown in Japan, in the upscale market, there would clearly be inflated prices driving the majority of the market to imported rice given that domestic rice was allowed to relfect its true price, mainly the land value of the protected agricultural land. To some extent this same type of problem is going on in the US. This more acute example might help the reader to understand the more intuitive insight of protected markets.)

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