Recently, a growing labor shortage has been causing Chinese wages to rise. If this trend continues, what would you expect to see happen to external economy industries (companies that export what they produce) currently dominated by China? Consider, in particular, the situation illustrated in Figure 7-4. How would change take place?

Figure 7-4 Price, cost (per button) The Importance of Established Advantage The average cost curve for Vietnam, ACVIETNAM, lies below the average cost curve for China, Co ACCHINA- Thus Vietnam could P. + - potentially supply the world mar- ket more cheaply than China. If - the Chinese industry gets estab- 2 ACCHINA lished first, however, it may be able to sell buttons at the price Py, +- - -- ACVIETNAM which is below the cost Co that an DWORLD individual Vietnamese firm would face if it began production on its Q, Quantity of buttons own. So a pattern of specializa- produced and demanded tion established by historical acci- dent may persist even when new producers could potentially have lower costs