Question

If a country has relatively abundant unskilled labor, with scarce land and capital, it is more likely to have a comparative advantage in which of the following industries? Check all that apply. \(\left[\mathrm{LO}_{17.1}\right]\) a. Food service. b. Textiles. c. Agriculture. d. Financial services.

Short answer

The country has a comparative advantage in food service and textiles.

Step-by-step solution

Understanding Comparative Advantage

Comparative advantage occurs when a country can produce a good or service at a lower opportunity cost than another country. In this context, the country has abundant unskilled labor but scarce resources like land and capital.

Analyzing Food Service Industry

The food service industry generally requires a large number of unskilled laborers, such as waitstaff, cooks, and cleaners, and does not heavily depend on land or capital. Therefore, a country with abundant unskilled labor may have a comparative advantage in this industry.

Analyzing Textiles Industry

The textile industry requires a significant amount of unskilled labor for production processes such as sewing and weaving. It is less dependent on land and capital compared to some other industries, making it a suitable option for a country with abundant unskilled labor.

Analyzing Agriculture Industry

The agriculture industry relies heavily on land and may require capital investments in machinery and technology. A country that is scarce in land and capital is less likely to have a comparative advantage in agriculture.

Analyzing Financial Services Industry

The financial services industry relies on skilled labor, capital, and technology, with a focus on intellectual and financial resources rather than unskilled labor. Therefore, a country with abundant unskilled labor and scarce land and capital is unlikely to have a comparative advantage in financial services.

Conclusion

Based on the analysis, the industries in which the country is more likely to have a comparative advantage are food service and textiles, as both are labor-intensive and require less land and capital.

Key concepts

Unskilled Labor

Unskilled labor refers to the workforce that does not require specialized training or education to perform tasks. These workers are often involved in manual or routine jobs that are labor-intensive.
For countries with a large pool of unskilled labor, the costs of hiring and maintaining this workforce are relatively low, allowing them to be competitive in industries that require many such workers.
This is advantageous because unskilled labor is typically more abundant and less expensive compared to skilled labor. Countries with abundant unskilled labor can thus focus their resources on industries that benefit from this type of workforce, such as food service and textiles.

Scarce Resources

Scarce resources mean that certain necessary resources like land and capital are limited in availability. This scarcity shapes which industries a country might have a comparative advantage in.
For example, if a country does not have much land, it might struggle to excel in agriculture, which relies heavily on large areas of land for cultivation.
Similarly, limited capital - the financial resources available for investment in machinery or technology - restricts a country's ability to dominate capital-intensive industries such as those that require heavy machinery.
Scarce resources influence a nation to specialize in industries that do not heavily depend on land or capital, steering them towards labor-intensive industries.

Opportunity Cost

Opportunity cost refers to the next best alternative foregone when making a choice. In terms of comparative advantage, it measures what is given up to produce a specific good or service.
For a country abundant in unskilled labor but short on land and capital, the opportunity cost of engaging in industries like agriculture or financial services can be higher than focusing on food service or textiles.
The rationale is that engaging in industries non-reliant on unskilled labor would mean sacrificing the effective use of their abundant resource - unskilled labor - thus incurring a higher opportunity cost.

Labor-Intensive Industries

Labor-intensive industries are those that require a significant amount of human labor to produce goods or services. These industries rely less on heavy machinery or capital and more on the workforce.
Examples of labor-intensive industries include food service and textiles, as workers are required for tasks like cooking, serving, sewing, and weaving.
For a country with a surplus of unskilled labor, these industries are ideal since they align with the country's available resources.
By focusing on labor-intensive industries, a country maximizes its strengths and minimizes the costs associated with its scarce resources like land and capital.