Not what you're looking for?
International Trade and Comparative Advantage
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:
1. 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.
2. How does this practice shift the equilibriums (price and output) for tobacco and domestic food items (analyze both the local and international effects)?
3. 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)?
4. 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?
5.What are the gains and losses for consumers in these types of international production and trading patterns?
Purchase this Solution
International production and trading patterns are featured.
- BSc, Dokuz Eylul University
- MBA, Texas A&M University-Kingsville
- "This is a great help...Thank you"
- "Thanks for the advice!"
- "Oh my gosh u are awesome... A++"
Purchase this Solution
Free BrainMass Quizzes
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
This quiz reviews the basic concept of supply and demand analysis.
Discussion about various pricing techniques of profit-seeking firms.
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.