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ProblemSet2bANSWERS - UBGA 118 International Trade Fall...

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UBGA 118: International Trade Fall 2008 Problem Set #2b ANSWERS (Due Tuesday, September 16, 2008) 1. Article Analysis: Read this article and answer the following questions. David Staba, "What Does Bioinformatics Mean? To an Ailing Industrial Region, the Answer Is Jobs" , The New York Times, July 9, 2009. The URL is: http://query.nytimes.com/gst/fullpage.html?res=9506EFDA1030F93AA35754C0A9609C8B63 a. Do you find it surprising that steel makers and manufacturers have left Buffalo? Do you find it surprising that the Trico Products company moved operations to Mexico and Texas? Explain your answers in terms of comparative advantage. In the terminology of the theory of comparative advantage, steel makers and manufacturers may have found operations elsewhere to have a lower opportunity cost: workers and production processes elsewhere could be just as productive but with lower costs so that the savings could be used to expand the business, lower prices to match or beat those of competitors, increase profit or all of the above. Trico Products may have moved operations to Mexico and Texas for the same reason: Mexican and Texan workers and operations may be more productive for each dollar spent by the company. b. Why might the U.S. have a comparative advantage in bioinformatics but not in manufacturing and steel making? Steel making and many manufacturing industries are well-established, ones that do not require much research and development. Bioinformatics is a new field that is driven by research and development. If the U.S. has a comparative advantage in research and development because it has a highly educated work force, then it should have a comparative advantage in bioinformatics. For the same reason, it should not have a comparative advantage in steel making and manufacturing when wages in the U.S. are higher than in other countries where the production can be done more efficiently and at a lower cost.
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