Class 25 - Outsourcing is Good?

Today we talked about how trade is always balanced and political borders have no real purpose in deciding the benefits of trade. Rizzo talked about a suit that cost $10,000 because it took 500 man-hours at $20/hr to make the suit with materials within 100 miles.

If there were 1,000 jobs outsourced to India, the workers would lose their $100,000 pay (wages, pensions, health care) so the company saves (the people lose) $100 million dollars. But the company only outsourced to minimize prices for consumers. So now the products in India are $2 cheaper. Therefore, the consumers gain $120 million and lose $100 million.

Cope rations don’t flee to pollution havens because of environmental conditions AND infrastructure and political stability

Things that trade does to be beneficial:

1.     Smithian Notions = You specialize because of trade, allocate time to learn one thing, and gain knowledge to get capital. Specializing = extend the market (economics of scale).

2.     Racardian Notions = Comparative advantage.

People value things differently = needed for trade.

Transaction costs = cost of negotiating contracts and agreements

            -physical barriers, ignorance of opportunities, interference