Using the concepts of absolute and comparative advantage answer the questions: W

Question

Using the concepts of absolute and comparative advantage answer the questions:

Why does the U.S. trade goods with other countries that they can produce themselves?

Wouldn’t the U.S. be better off producing the goods themselves?

In your opinion, has the U.S. outsourced too much? Explain why you believe that the U.S. has or has not outsourced too much keeping in mind the reasons why corporations outsource, and the benefits derived from this strategy.

Please review the following resources when forming your opinion; you are free to do as much research as you want however your opinion should be based on data and not assumptions! For example, just because your cousin lost his job because it was sent overseas doesn’t necessarily mean that there was an overall negative economic impact!

Economics of Outsourcing Policy   http://www.plu.edu/~econ331/home.html

The Case for Outsourcing Jobs  http://money.cnn.com/2012/09/14/news/economy/outsourcing-jobs/index.html

Outsourcing for Dummies (and the Willfully Ignorant)http://www.forbes.com/sites/danikenson/2012/07/11/outsourcing-for-dummies-including-the-willfully-ignorant/#39516eaa6821

US Manufacturers Have Three Million Available Jobs To Fillhttp://www.infowars.com/us-manufacturers-have-three-million-available-jobs-to-fill/

U.S. Trade: Exports and Imports Decline Sharply in January 2009http://www.calculatedriskblog.com/2009/03/us-trade-exports-and-imports-decline.html

Please take a look at how import and exports mirror each other

Explanation / Answer

Dear sir/madam,

US trades goods with other countries to attain profit. US is short in some raw materials and is working in a high capital-output ratio while there is high population in the world. So, there is need for certain projects which are more labor-intensive. Also, the currency(dollar) of US is quite expensive. So US is at advantage when the other nations invest in its industries.

At low cost, US gets more currency which it spends in government spending which leads to high employment and hence, high output . There is also case of higher balance of payments. US wants to have high market by sending its exports to the world. For trade, US wants the output of many high labor-intensive industries like tea, coffee, rubber, cereals, and other plantation goods which are in demand in US. This brings lot of foreign currency in US because of high exchange rate.

There is high advantage to US in outsourcing. It is because of the high labor costs in US. As the US currency dollar is high in value hence US can get cheap labor from other poor countries. Hence there is benefit for US

Compared with other countries, US is at great advantage as its high technology is in great demand and it can also manufacture and export highy technical goods to other countries. US goods are more technical oriented and has more technical know-how and certain highly sophisticated goods like computers are at great demand in other countries .

By,

Nishant Bhatt

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