Video transcript
Work It Out, Chapter 4, Question 1
(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
This problem will ask you to determine which sector is capital-intensive.
To determine this, we will compare the payments ratio to labor and capital in both the computer and shoes sectors by using the basic formula payments to labor in the computer industry divided by payments to capital in the computer industry, WLC to RKC, and payments to labor in the shoe industry divided by payments to capital in the shoe industry, WLS to RKS.
(Description)
The following relations are shown:
WL subscript C divided by RK subscript C.
WL subscript S divided by RK subscript S.
(Speaker)
Now we will add the given data into each equation: payments to labor in the computer industry, WLC equals 50, payments to capital in the computer industry, RKC = 50.
Therefore, the ratio of payments to labor to capital in the computer industry, WLC to RKC equals 50 to 50.
Payments to labor in the shoe industry, WLS equals 10, payments to capital in the shoe industry, RKS equals 90
Therefore, the ratio of payments to labor to capital in the shoe industry, WLS to RKS equals 10 to 90.
(Description)
The data inserted into the equations as following:
WL subscript C divided by RK subscript C equals 50 divided by 50.
WL subscript S divided by RK subscript S equals 10 divided by 90.
(Speaker)
We now compare the values to determine the relationship and find that the ratio of payments to labor to payments to capital in the computer industry, WLC to RKC, is greater than the ratio of payments to labor to payments to capital in the shoe industry, WLS to RKS.
(Description)
The following text is written:
Compare the two equations to determine the greater than sign, less than sign, equals sign relationship: 50 divided by 50 is greater than 10 divided by 90.
(Speaker)
Since the ratio of payments to labor to payments to capital in the computer industry, WLC to RKC, is greater than the ratio of payments to labor to payments to capital in the shoe industry, WLS to RKS, this implies that the labor to capital ratio in the computer industry, LC to KC, is greater than labor to capital ratio in the shoe industry, LS to KS. The production of shoes is therefore capital-intensive.
(Description)
The following text is added below the previous relations:
WL subscript C divided by RK subscript C is greater than WL subscript S divided by RK subscript S, which implies L subscript C divided by K subscript C is greater than L subscript S divided by K subscript S; therefore, the computer industry is labor-intensive, and the shoe industry is capital-intensive.
(Speaker)
This is a reasonable question, even though the same industry can be capital-intensive in one country and labor-intensive in another, because the factor intensities will allow us to determine the effect that international trade will have on real wages and rental within each country.