Explore BrainMass
Share

Explore BrainMass

    Impact of subsidy and shift of facility on the economy

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Hello Rahul, can you help me do this assigment. I'm having a hard time with this course. Thanks for your help

    For your next white paper for company deployments, you have been asked to write about trade, cost, and price using your work in Acme Mexico as one example.

    Multinational corporations are continually seeking sources of comparative advantage by investing in developing countries. Sometimes, they are initially willing to pay a high price for that advantage. For example, U.S. tobacco companies create strong incentives for local farmers in developing countries to grow tobacco instead of crops used for domestic food production by offering underwritten loans, subsidies for startup costs, and a guaranteed demand for their tobacco crops. The following questions pertain to the foundations of modern trade theory and comparative cost of production and pricing decisions:

    Explain why the U.S. would subsidize the short run costs of production for tobacco farmers in foreign countries. Do these practices guarantee the tobacco farmers a profit in the short run? Long run? Explain.

    How does this practice shift the equilibriums (price and output) for tobacco and domestic food items (analyze both the local and international effects)?

    In the case with Acme Motors, what are the production gains to the entire company from the facility in Nuevo Laredo, Tamaulipas specializing in Autoturbo Quattro engines (i.e., why do they just make engines in Nuevo Laredo rather than the entire auto)?

    Why would Acme Motors shift its production of engines from Detroit to Mexico and then shift the engines back to the U.S. to be assembled into the finished auto?

    What are the gains and losses for consumers in these types of international
    production and trading patterns?

    © BrainMass Inc. brainmass.com October 9, 2019, 6:17 pm ad1c9bdddf
    https://brainmass.com/economics/barriers-to-growth/impact-of-subsidy-and-shift-of-facility-on-the-economy-83984

    Solution Preview

    For your next white paper for company deployments, you have been asked to write about trade, cost, and price using your work in Acme Mexico as one example.

    Multinational corporations are continually seeking sources of comparative advantage by investing in developing countries. Sometimes, they are initially willing to pay a high price for that advantage. For example, U.S. tobacco companies create strong incentives for local farmers in developing countries to grow tobacco instead of crops used for domestic food production by offering underwritten loans, subsidies for startup costs, and a guaranteed demand for their tobacco crops. The following questions pertain to the foundations of modern trade theory and comparative cost of production and pricing decisions:

    Explain why the U.S. would subsidize the short run costs of production for tobacco farmers in foreign countries. Do these practices guarantee the tobacco farmers a profit in the short run? Long run? Explain.

    In economics, the theory of comparative advantage explains why it can be beneficial for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other.
    Thus US in order to take advantage of low cost of Mexico, wants to subsidize in short run to provide incentive to the farmers to grow tobacco in Mexico. In short run Farmers can make money due to the subsidies. In long term it may not be the case as US can withdraw the subsidies.

    How does this practice shift the equilibriums (price and output) for tobacco and domestic food items (analyze both the local and international effects)?

    This practice will increase the equilibrium prices for the food and reduce the quantity for it. This will be because there will be less production of food so supply of food will be less and thus will lead to the increase in price.
    The price of the tobacco will reduce and the ...

    Solution Summary

    This explains the impact of subsidy and shift of facility on the economy

    The solution has only Book reference.

    $2.19