Business: International Trade and Comparative Advantage

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HOMEWORK 11 (Last HW – Due 4/28)

Read the Logitech case and answer the following questions.

1: In a world without trade, what would happen to the costs that American consumers would have to pay for Logitech’s products?

2: Explain how trade lowers the costs of making computer peripherals such as mice and keyboards.

3: Use the theory of comparative advantage to explain the way in which Logitech has configured its global operations. Why does the company manufacture in China and Taiwan, undertake basic R&D in California and Switzerland, design products in Ireland, and coordinate marketing and operations from California?

4: Who creates more value for Logitech – the 650 people it employs in California and Switzerland, or the 4,000 employees at its Chinese factory? What are the implications of this observation for the argument that free trade is beneficial?

5: Why do you think the company decided to shift its corporate headquarters from Switzerland to Fremont?

6: To what extent can Porter’s diamond help explain the choice of Taiwan as a major manufacturing site for Logitech?

7: Why do you think China is now a favored location for so much high-technology manufacturing activity? How will China’s increasing involvement in global trade help that country? How will it help the world’s developed economies? What potential problems are associated with moving work to China?

In a world without trade, what would happen to the costs that American consumers would have to pay for Logitech’s products?

In a world without trade, the costs that American consumers would have to pay would be very high. The product that the case study gives for an example, Wanda, retails for $40, of which only $3 is the production cost from China. This $3 cost would rise immensely if production was in the United States because the American economy demands high wages.

Explain how trade lowers the costs of making computer peripherals such as...
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