Reference no: EM133377994

CASE STUDY:

An effective understanding of economics forms the foundation of every manager, entrepreneur, bureaucrat, and leader's ability to analyze business situations and develop an appropriate response. The globalization of business is a fact of life for all business professionals. One of the most contentious issues in today's global business world is the issue of closing local manufacturing facilities, laying off those American workers, and re-opening the same manufacturing facilities in another country.

If you were to go back in time 150 years ago (the 1870s), the clothes you owned would have been manufactured in textile mills in the Northeast United States (Maine, New Hampshire, Vermont, Massachusetts, etc.). By the early to mid-1950s, those Northeastern textile mills had closed, and their workers had lost their jobs. The mills had relocated to the Southeast during the years following the Civil War. By the 1970s, the majority of the clothes you owned would have been manufactured in textile mills in the Southeastern United States (Georgia, Alabama, Mississippi, North Carolina, South Carolina, etc.). Now, those Southeastern textile mills are closed, and those workers lost their jobs. Today, people in the United States buy mostly foreign-made clothes.

Many people say that importing these foreign-made clothes should be banned so that more workers in American clothing textile mills could have jobs. Others say that we should continue to import clothing because imported clothing is relatively less expensive, and more people can afford to buy more clothes at these low prices. Still, others say that there should be an import tariff (an extra tax to be paid when you buy these imported clothes), making the price of imported clothing comparable to the price of clothing made in the U.S., and, therefore, encouraging American consumers to buy American-made clothing. Some of these perspectives do not account for how comparative advantage and opportunity costs contribute to mutual gains from trade.

Questions

How much does international trade affect you personally? Look at any 10 items around your home that you have purchased in the last year. Where were they made? How many were made in America, compared to how many were foreign-made? What things does America export to other countries? What things does America import from other countries? Explain, in detail, how comparative advantage and opportunity costs contribute to the benefits of international trade.