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In China, many farmers have switched from producing rice to producing vegetables and fruit because they can earn a great deal more money from these specialty crops. Within China, there are some who applaud this change, but others worry that China soon may become dependent on rice imports. Even with the low cost of Chinese labor, does the fact that China is importing rice suggest that other countries now have a comparative advantage in rice production?

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jepessoa

Answer:

Yes, other countries probably have a comparative advantage in the production of rice.

Explanation:

Comparative advantages are given by the opportunity costs of producing one product instead of another. In this case, the opportunity cost of producing rice in China has increased due to higher prices of fruits and vegetables.

The costs of producing a certain good are not only labor costs, but they also include capital and land costs. It is possible that other Asian countries have lower labor costs than China and therefore have  comparative advantage in the production of rice. But even countries were labor is more expensive can also have a comparative advantage in the product of rice due to lower capital and/or land costs.

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