Chapter 2

Chapter 2 - Chapter 11 International Agreements...

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International trade creates many winners and some losers. Sometimes, a few losers in rich countries try to stop trade that would make winners of workers in very poor countries. The first lesson in international economics is that there are gains from trade. Two trading partners can both be better off when each specializes in the production of goods in which it has a comparative advantage. The second lesson in international economics is that within a nation, trade usually creates both winners and losers. Even if the net benefits for a country (the total of all the gains for the winners minus the losses for the losers) would be large, the people who would lose from trade may be able to block it. Sometimes the people in rich countries who would lose from more trade try to argue that they are stopping trade for the benefit of the workers in the poor countries. They claim that the workers in the poor countries are being exploited. This article from the New York Times lets you see things from the perspective of a garment worker in Pakistan. He is clearly very poor, but his economic opportunities would be even worse if his employer could not export to the United States. He wants more trade, not less, and is very angry about the limits that the United States puts on its imports of textiles and apparel (cloth and clothing) from his country. After Pakistan supported the military action undertaken by the United States in Afghanistan, people in Pakistan had hoped they would be allowed to export more textiles and apparel to the United States. They were bitterly disappointed when this did not happen. There were early indications that Washington wanted to reward Pakistan with more exports. Here is why the United States government chose not to. Under its treaty obligations to the World Trade Organization (WTO), the United States is gradually removing the barriers that prevent imports of textiles from poor countries. This is causing cutbacks at textile and apparel firms in the United States. Senators from the states with many of these firms had already been complaining about these treaty commitments. They were adamantly opposed to even more imports than required by the treaty, so they demanded, and received, assurances that the President would give Pakistan only a token increase in its allowable exports to the United States. 1. Assume that there are four weeks per month. In rough terms, the hourly wages earned by workers in the garment factory described in the news article is: A. Between $2 and $3 per hour B. Between $0.20 and $1 per hour C. Less than $0.20 per hour D. Between $1 and $2 per hour The article states that the workers earn between $70 and $150 per month. If you divide these numbers by 192 hours (48 hours per week times four weeks per month), you get a range between $0.36 and $0.78 per hour. 2. Suppose that most workers in Pakistan work 48 hours per week and that there are four weeks in a
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This note was uploaded on 04/26/2008 for the course EC 102 taught by Professor Zagorsky during the Spring '08 term at BU.

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Chapter 2 - Chapter 11 International Agreements...

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