As we all know that China is a country with a large population of people. With a lot of investment and professional people in China, it has become a strong foreign competition in producing pencils. With the high technology of machines in China, it is said to have more cost advantages in costs, material and production or even labor costs.
Apparently, China has a cost advantage in the production of pencil is because of the low inflation rate. Inflation can be defined as a rise in the general level of prices of goods and service in an economy over a period of time. It means as the general price level increase, each unit of currency buy less goods and services. So with the low inflation rate of china, the product is cheaper and gives benefits to the poor which they are able to purchase it. It also allows real wages decrease and causing lower standard of living which eventually affect the population. One of the benefits of the low inflation rate is consumers and businesses able to make long-range plans.
Second, China has a high level of population, so the labour is cheap compared to the US labours which results in lowering the costs. This is because there are many people in China which needs job and job available is not enough for everyone, therefore people are willing to work with a low pay. So, China is a country with good advantages of producing product. The cheaper labour cost of China also lowers the cost production of pencils. Besides, employers also provide free or subsidized housing and social facilities and provide free health care for the labours.
With the available of raw material in China, it could be cheaper compared to the sources which US is being supplied for the pencil production. The abundant resources and raw material of China make it easy for making outputs. Since low quality products have no guarantee, the goods produced are cheaper since the cost