US Outsource Manufacturing Quiz Questions

The Ford assembly line workers will be most adversely affected by Ford's outsourcing of part of its operations to Mexico. This is because outsourcing typically involves moving production or manufacturing processes to another country where labor costs are lower. As a result, the company may choose to lay off or reduce the number of assembly line workers in order to cut costs and take advantage of cheaper labor in Mexico. This decision directly impacts the job security and livelihood of the assembly line workers, making them the group most affected by the outsourcing.

The main factor that influences a firm's decisions whether to outsource is the relative equilibrium wages of skilled versus unskilled workers at home and abroad. This means that the firm will consider the balance between the wages of skilled and unskilled workers in their home country compared to those in the foreign country. If the wages of skilled workers are higher in the home country while the wages of unskilled workers are lower, the firm may choose to outsource to the foreign country where they can get skilled workers at a lower cost.

"Slicing the value chain" refers to the transfer of activities that are more profitable when carried out in foreign nations. This means that certain parts of a company's value chain, such as manufacturing or customer service, are moved to foreign countries where they can be done more efficiently and at a lower cost. By doing so, companies can increase their profitability by taking advantage of lower labor costs or other benefits offered by foreign nations.

When the international relative price of components is lower than the home price of components, a country will find outsourcing attractive because it can obtain the components at a lower cost from foreign countries. This allows the country to reduce production costs and potentially increase its competitiveness in the global market. By outsourcing, the country can take advantage of lower prices in other countries and benefit from cost savings.

If there is an increase in the price for research and development products, the firm will export those products. This means that the firm will sell these products to other countries rather than importing them. As a result, the demand for skilled workers, who are needed for R&D, will increase. With an increase in demand, the wages for skilled workers will rise. The price line above will become flatter because the firm is exporting more and relying less on importing components that require unskilled workers.

The United States is more likely to outsource skilled service activities rather than unskilled manufacturing activities to India because the Indian "trade costs" associated with service activities are lower than those associated with manufacturing activities. This means that it is more cost-effective for the United States to outsource skilled services to India due to lower trade costs, while the higher trade costs for manufacturing activities make it less favorable to outsource unskilled manufacturing to India. Additionally, the relative wages of less-skilled workers are lower in India than in the United States, further incentivizing the outsourcing of skilled services.

If relative wages for unskilled workers are lower in a foreign country, it would be more cost-effective for the home country to outsource tasks that require unskilled workers to the foreign country. This is because the lower wages in the foreign country would make the production costs lower, allowing the home country to save money by outsourcing these tasks. Therefore, the home country would have an incentive to outsource tasks that require unskilled workers in order to remain competitive and reduce production costs.

Service activities can be successfully outsourced compared to manufacturing activities because of lower transportation and communication costs. This means that it is easier and more cost-effective to transfer services across geographical locations, allowing companies to take advantage of lower labor costs in other countries. Additionally, outsourcing services is not prohibited by US laws, unlike in some other countries. The combination of these factors makes outsourcing service activities more feasible and advantageous.

If the US congress passes a law that restricts outsourcing in industries where significant outsourcing is taking place, the potential winners would be the workers in those industries. This is because the restriction would likely lead to more job opportunities and job security for them. On the other hand, the potential losers would be the firms in the industries that are outsourcing, as they would have to find alternative ways to conduct their business. Additionally, consumers may also lose out as the restriction could potentially lead to higher prices for goods and services.

Based on the outsourcing model, the likely pattern of trade between Somansland and Nomansland would be for Nomansland to outsource less skilled labor intensive activities to Somansland and perform the high skilled labor activities at home. This is because the table shows that Nomansland has a lower labor hours per unit of output for less skilled labor activities compared to Somansland. Therefore, it would be more cost-effective for Nomansland to outsource these activities to Somansland, where the labor costs are lower, while keeping the high skilled labor activities within their own country.

An increase in demand for skilled, outsourced labor will raise the relative wage of skilled labor in both nations because the outsourcing nation will shift resources from medium- to higher-skilled domestic workers. This means that there will be a higher demand for skilled workers, causing their wages to increase. Additionally, the outsourced nation will see an increase in demand from lower- to medium-skilled workers, which will also lead to a rise in their wages. Furthermore, activities that used higher priced medium-skilled workers in the home nation will now use lower-priced medium-skilled workers in the outsourced nation, resulting in a decrease in wages for medium-skilled workers in the home nation.

Samuelson's example is an analysis of a fall in export prices, which worsens the terms of trade, and reduces export volume. Samuelson's point is that a country is better off in the absence of trade. This means that when export prices fall and the terms of trade worsen, the country is worse off and its overall economic situation deteriorates. Therefore, the correct answer is "worsens; reduces; better off; in the absence of trade."

Based on the information provided, we can predict that Nomansland will outsource to Somansland. This is because the labor hours per unit of output in Nomansland are lower compared to Somansland. Assuming that all other trade costs are the same, Nomansland can take advantage of the lower labor costs in Somansland by outsourcing their value chain activities to them. On the other hand, Somansland may not outsource to Nomansland because the labor costs in Somansland are higher.

The correct answer is Mars and assembly activity will be outsourced by Mars. This is because Mars has a higher relative wage of unskilled labor compared to Jupiter. In outsourcing, a country typically outsources activities that require lower-skilled labor to countries where labor costs are lower. Since assembly is an unskilled-labor intensive activity, Mars, with its higher relative wage of unskilled labor, would outsource this activity to reduce costs.

i) The cost of conducting assembly operations in the United States is $80 per unit of output, while in India it is $60 per unit of output. This is calculated by multiplying the labor requirement for assembly operations (4 hours) by the wage rate for skilled workers in each country ($20 in the United States and $5 in India).

ii) If trade costs are zero, the United States will outsource assembly operations, component production, and office services to India. This is because the cost of conducting these operations is lower in India compared to the United States.

iii) If trade costs represent 25% of wage costs in India, the United States will only outsource assembly operations to India. This is because the increased trade costs make it less cost-effective to outsource component production and office services.

iv) The relative wage of skilled labor in the United States is $3 for every $1 in India. This is calculated by dividing the wage rate for skilled workers in the United States ($60,000 per year) by the wage rate for skilled workers in India ($5,000 per year).

v) India has a higher relative wage of skilled labor compared to the United States.

vi) If the United States and India engage in outsourcing, the relative wage of skilled labor will increase in both countries. This is because outsourcing typically leads to an increase in demand for skilled labor, driving up wages.

The correct answer is i) Y0; ii) 120; iii) 80; iv) outsource (import) components and export R&D; and v) 80 R&D; 200 components. This is because line Y0 represents the initial level of production for the economy. In a "no-outsourcing" equilibrium, 120 units of component production will occur, while 80 units of R&D production will occur. If component parts become relatively cheaper, the firm will have an incentive to outsource (import) components and export R&D. If the nation outsources its component production and exports R&D, it will have 80 units of R&D and 200 units of components available in equilibrium.

Based on the information given, the decision to outsource activities is solely based on labor costs. Since Nomansland has lower labor costs compared to Somansland, it would make sense for them to outsource the activities with higher labor requirements, which are activities A and C. On the other hand, Somansland will outsource activities A and B because they have higher labor costs, and they will perform activities C and D at home. Therefore, the correct answer is "Nomansland will outsource activities A and C and will perform activities B and D at home."

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The reason outsourcing of very-high-skill medical and technology services to other countries seems to contradict the value chain model of outsourcing is because the assumption that all trading costs (tariffs, transportation costs, capital, communication, etc.) are the same across countries is not correct. The value chain model of outsourcing is based on the idea that companies should outsource activities that can be done more efficiently and cost-effectively by other firms. However, if the trading costs vary significantly between countries, it may not be economically beneficial to outsource high-skill services to other nations, even if the wages of higher-skilled workers are relatively lower.

The Ricardian explanation of comparative advantage states that trade occurs because of differences in relative productivities. The given answer suggests that nations like India have relatively high productivities, which confirms the Ricardian theory. This means that India has a competitive advantage in certain industries due to its higher productivity levels.