Understanding Trade Choices for Economic Growth

2. Trade Choices • You have $1,000 to spend and your alternatives are to: Purchase one Canadian made canoe and one Canadian made bicycle. or Purchase one Chinese made television, one Korean made bicycle and two cases of French wine. or Use the $1,000 for investment in the stock of a U.S. company. Which do you choose to do?

3. Voluntary Trade Creates Wealth Kenneth Leonard PhD Foundation for Teaching Economics

4. Apples and Oranges Apple price $.70/lb Orange Price $.70/lb Washington Rancher 20 acres yields Apples 50 bu/acre Oranges 1bu/acre Florida Rancher 20 acres yields Apples 2bu/acre Oranges 40 bu/acre Kenneth Leonard PhD Foundation for Teaching Economics

5. Canada’s GDP and Trade 2007 $$ billions Source: World Bank Kenneth Leonard PhD Foundation for Teaching Economics

8. Top Canadian Trade Partners Total Trade: Exports Plus Imports Rank by Exports( CA $--billions) Source: Industry Canada Trade Data Online (TDO) Kenneth Leonard PhD Foundation for Teaching Economics

9. United States’ Trade with Canada, 2011in billions of dollars tse.export.gov Kenneth Leonard PhD Foundation for Teaching Economics

10. Kenneth Leonard PhD Foundation for Teaching Economics

11. Kenneth Leonard PhD Foundation for Teaching Economics

12. Kenneth Leonard PhD Foundation for Teaching Economics

13. Kenneth Leonard PhD Foundation for Teaching Economics

14. Canadian Goods Trade Balance With Other Nations, 2012 ($CA - billions) Kenneth Leonard PhD Foundation for Teaching Economics http://www.census.gov/foreign-trade/balance/

15. U.S. Balance of Payments 2008 ($ billions) Current Account -706.0 Merchandise trade balance -695.9 Goods & Services exports 1,826.6 Goods & Services imports -2,522.5 Net Transfers -128.3 Net Income Payments 118.2 Capital Account +706.0 Increase in U.S. holdings of foreign assets -106 Increase in Foreign holdings of U.S. assets 505,166 Statistical Discrepancy +200 http:bea.gov

16. Canada’s Balance of Payments 2012 ($ millions) Current Account -66,944 Goods & Services exports 545,825 Goods 474,422; Services 107,850 Goods & Services imports -582,273 Goods 462,544; Services 83,28Net Transfers -3,671 Net Income Payments -26,824 Financial Account +63,590 Net Acquisition of Financial Assets -119,093 Net Incurrence of Liabilities 182,683 Statistical Discrepancy 3,354 statcan.gc.ca Kenneth Leonard PhD Foundation for Teaching Economics

17. http://bea.gov Kenneth Leonard PhD Foundation for Teaching Economics

18. Statistical Comparison of NAFTA Countries, 1997(In current U.S. $$) Statistical Comparison of NAFTA Countries, 2011 (In current U.S. $$) Kenneth Leonard PhD Foundation for Teaching Economics http://web.worldbank.org

19. Hourly Compensation Costs for Workers in Manufacturing, Selected Countries, 2011 (current dollars) Labor Costs (in $ U.S.) United States35.53 Canada 36.56 France 42.12 Germany 47.38 Italy 36.17 Japan 35.71 United Kingdom 30.77 Korea 18.91 Mexico 6.48 Singapore22.60 Philippines 2.01 v www.bls.gov Kenneth Leonard PhD Foundation for Teaching Economics

20. The Magic of Markets: Trade Creates Wealth Classroom Activity: www.fte.org/teacher-resources/lesson-plans/efllessons/the-magic-of-markets-trade-creates-wealth/

21. Foreign Currency & Foreign Exchange Classroom Activity: http://www.fte.org/teacher-resources/lesson-plans/efllessons/foreign-currencies-and-foreign-exchange/

22. The “Giant Sucking Sound” Classroom Activity: http://www.fte.org/teacher-resources/lesson-plans/efllessons/the-giant-sucking-sound-job-woes-or-trade-flows/

23. Background • The demand for labor is derived demand. The demand for workers is dependent upon the demand for the product the workers make. If no one wants to purchase the product, then there will be no demand for workers to produce it.

24. Background • The market price of the product affects employers' hiring decisions. If the cost of labor is so high that an employer cannot make a profitby selling the product at the market price, then the employer will not be willing to pay for the labor. In simplest terms, market prices influence the wages that employers are willing to pay.

25. Background • Wages are also influenced by productivity(output per man-hour of labor). In hiring any particular worker, the employer must ask how much the worker will contribute to the business in terms of output. Economists call this the "value added”or“marginal value."

26. Productivity • Worker productivity is determined by a number of factors, some under control of the worker himself and some the result of the conditions of employment. Examples of productivity factors include: • the worker's physical abilities; • the worker's level of education; • the type and amount of equipment (capital) available; • other factors and conditions in and around the particular job location.

27. It's also important to understand that how many other workers have already been hired affects a worker's productivity. • In some cases, hiring additional workers increases productivity as each worker is able to specialize. • At some point, however, hiring additional workers results in diminishing marginal returns, meaning that the additional (marginal) output attributable to the next worker hired will necessarily be less than that of the worker hired before him. A simple example of this is the "too many cooks spoil the broth" syndrome.

28. 1 Kitchen - How Many Cooks? No Cook – No Pizza ! 10 10 Good cook – does everything himself 25 15 1 baker, 1 prep and waiter 45 1 baker+1 prep+1 waiter – what a system! 20 55 10 Extra guy – helps who ever is behind 55 0 Things aren’t so hectic 40 -15 Get her out of the way ! Would you hire 6 cooks? What's the most you'd be willing to pay cook #4?

29. Scenario • In college, Maria and Mario started a t-shirt business out of their parents' garage. Now they've graduated, and would like to expand the business and become the bosses instead of the "do-everything" people. • They've made a list of the different tasks involved in the business - most of which they now do themselves. They figure there are 2 kinds of tasks in the t-shirt business:

30. Skilled Jobs Bookkeeping Marketing T-shirt Design Advertising Shipping & Ordering Unskilled or low-skill jobs Taking orders Cutting Patterns Sewing Printing Labeling Packing Delivery

31. Mario & Maria’s dilemma • Every person they hire means one less thing they have to do themselves - and they can choose to do the things they enjoy most - like the design and marketing, for example. The question is how many people to hire. • Based on past experience, here's what they think will happen when they begin to hire workers:

32. Output, Additional (Marginal) Product, and Additional (Marginal) Revenue T-shirt price (P) = $_________

34. Problem • You are a member of your firm's Make It Work Circle. The firm has adopted a profit-sharing scheme and created the MIW Circle in which employees, management and ownership meet regularly to discuss the business. The profit-sharing agreement means that employees have a stake in the success of the business - if the firm makes more profit, the employee gets more income - and therefore, employees participate enthusiastically in the MIW meetings. • The market for t-shirts has grown in response to fashion trends and the employer has found a backer willing to provide the investment funds necessary to triple the size of the company. However, the company's personnel recruiter has reported that it's practically impossible to hire yellow card workers. • The employer has called an MIW meeting to brainstorm solutions to this labor dilemma. Make a list of things the company could do to take advantage of the opportunity to expand.

36. Peñyasa Mexican Apparel Sourcing • Apparel Sourcing, Cutting, Sewing, Distribution • "A Relationship of Trust and Profitability" • The North America Free Trade Agreement has opened new opportunities for trade in the apparel industry between Mexico and the United States. • Peñyasa was incorporated in 1997 as a garment manufacturing company to service the U.S. market. • Peñyasa's cutting and sewing plant is a world class facility with an output capacity of 60,000 dozens per month with 450 operators. • Peñyasa's management team is a blend of experienced professionals from different fields that fully understand the concept of global sourcing. • Our labor costs are low - average 50% - 75% below comparable US rates. Work quality is high. We guarantee to cut your costs by 30-50%! • Sourcing with Peñyasa will significantly reduce costs and add value to your entire operation, allowing you to concentrate on sales, marketing, and management. Now That You Know We're Here, Can You Afford to Pretend We're Not?