What is off-shoring of white-collar service jobs and how does that practice relate to international trade? Why has off-shoring increased over the past few decades? Give an example of how off-shoring can eliminate some American jobs while creating other American jobs.

Course: Principles of Microeconomics

 International Economics

Goals

After completing this module, you will be able to do the following:

⦁ List and discuss several key facts about international trade.

⦁ Define comparative advantage, and demonstrate how specialization and trade add to a nation’s output.

⦁ Describe how differences between world prices and domestic prices prompt exports and imports.

⦁ Analyze the economic effects of tariffs and quotas.

⦁ Analyze the validity of the most frequently presented arguments for protectionism.

⦁ Identify and explain the objectives of GATT, WTO, EU, Eurozone, and NAFTA, and discuss off shoring and trade adjustment assistance.

⦁ Explain how currencies of different nations are exchanged when international transactions take place.

⦁ Analyze the balance sheet the United States uses to account for the international payments it makes and receives.

⦁ Discuss how exchange rates are determined in currency markets that have flexible exchange rates.

⦁ Describe the difference between flexible exchange rates and fixed exchange rates.

⦁ Explain the current system of managed floating exchange rates.

⦁ Identify the causes and consequences of recent U. S. trade deficits.

⦁ Describe how the World Bank distinguishes between industrially advanced countries (high-income nations) and

developing countries (middle-income and low-income nations).

⦁ List some of the obstacles to economic development.

⦁ Explain the vicious circle of poverty that afflicts low-income nations.

⦁ Discuss the role of government in promoting economic development within low-income nations.

⦁ Describe how industrial nations attempt to aid low-income countries.

Overview

Backpackers in the wilderness like to think they are “leaving the world behind,” but, like Atlas, they carry the world on their shoulders. Much of their equipment is imported— knives from Switzerland, rain gear from South Korea, cameras from Japan, aluminum pots from England, sleeping bags from China, and compasses from Finland. Moreover, they may have driven to the trailheads in Japanese-made Toyotas or German-made BMWs, sipping coffee from Brazil or snacking on bananas from Honduras.

International trade and the global economy affect all of us daily, whether we are hiking in the wilderness, driving our cars, buying groceries, or working at our jobs. We cannot “leave the world behind.” We are enmeshed in a global web of economic relationships, such as trading goods and services, multinational corporations, cooperative ventures among the world’s firms, and ties among the world’s financial markets. The focus of this module is the trading of goods and services.

If you take a U. S. dollar to the bank and ask to exchange it for U. S. currency, you will get a puzzled look. If you persist, you may get a dollar’s worth of change: One U. S. dollar can buy exactly one U. S. dollar. But on April 21, 2013, for example, 1 U. S. dollar could buy 1,837 Colombian pesos, 0.97 Australian dollar, 0.66 British pound, 1.03 Canadian dollars, 0.77 European euro, 99.55 Japanese yen, or 12.29 Mexican pesos. What explains this seemingly haphazard array of exchange rates?

This module also examines comparative advantage as the underlying economic basis of world trade and discussed the effects of barriers to free trade. We introduce the highly important monetary and financial aspects of international trade.

It is difficult for those of us in the United States, where per capita GDP in 2012 was about $42,683, to grasp the fact that about 2.5 billion people, or nearly half the world’s population, live on $2 or less a day. And about 1.3 billion live on less than $1.25 a day. Hunger, squalor, and disease are the norm in many nations of the world. This module identifies the developing countries, discusses their characteristics, and explores the obstacles that have impeded their growth.

It also examines the appropriate roles of the private sector and government in economic development. Finally, this module looks at policies that might help developing countries increase their growth rates.

Read: Microeconomics: Principles, Problems, and Policies: Chapters 24-25W

Assignment:

1. Draw a domestic supply-and-demand diagram for a product in which the United States does not have a comparative advantage. What impact do foreign imports have on domestic price and quantity? On your diagram show a protective tariff that eliminates approximately one-half of the assumed imports.

What are the price-quantity effects of this tariff on:

(a) domestic consumers
(b) domestic producers
(c) foreign exporters?
How would the effects of a quota that creates the same amount of imports differ?

2. What form does trade adjustment assistance take in the United States? How does such assistance promote political support for free-trade agreements? Do you think workers who lose their jobs because of changes in trade laws deserve special treatment relative to workers who lose their jobs because of other changes in the economy, say, changes in patterns of government spending?

3. What is off-shoring of white-collar service jobs and how does that practice relate to international trade? Why has off-shoring increased over the past few decades? Give an example of how off-shoring can eliminate some American jobs while creating other American jobs.

4. Suppose Super D’Hiver a hypothetical French snowboard retailer  wants to order 5,000 snow-boards made in the United States. The price per board is $200, the present exchange rate is 1 euro = $1, and payment is due in dollars when the boards are delivered in 3 months. Use a numerical example to explain why exchange-rate risk might make the French retailer hesitant to place the order. How might speculators absorb some of Super D’Hiver’s risk?

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