Trade ChoicesYou 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?

Kenneth Leonard PhDFoundation for Teaching Economics

Apples and Oranges

Apple price $.70/lbOrange Price $.70/lb

Washington Rancher20 acres yields

Apples 50 bu/acreOranges 1bu/acre

Florida Rancher20 acres yields

Apples 2bu/acreOranges 40 bu/acre

Kenneth Leonard PhDFoundation for Teaching Economics

Year GDP Total Exports

Total Imports

1995 635 236 216

2000 779 354 310

2006 1375 495 461

2007 1530 534 506

2008 1615 570 545

2009 1438 414 439

2010 1695 497 530

2011 1866 579 604

Canada’s GDP and Trade 2007 $$ billions

Source: World Bank Kenneth Leonard PhDFoundation for Teaching Economics

 

2001 2002 2003 2004 2005 2006 2007

2008 2009 2010 2011

2012

US570 564 531 557 581 577 577 603 457 502 551 573

China17 20 23 31 37 42 48 53 51 58 65 70

UK17 14 15 17 19 21 24 26 21 27 29 27

Japan23 24 22 22 24 25 25 26 21 23 24 25

Mexico15 15 14 17 18 20 22 24 21 27 30 31

Netherlands

3 3 3 3 4 5 6 6 5 5 7 8S Korea

7 7 7 8 8 9 8 10 9 10 12 10Germany

11 11 12 12 14 15 15 17 15 15 17 18

Top Canadian Trade PartnersTotal Trade: Exports Plus ImportsRank by Exports( CA $--billions)

Source: Industry Canada Trade Data Online (TDO) Kenneth Leonard PhDFoundation for Teaching Economics

United States’ Trade with Canada, 2011

in billions of dollars

1-Digit SITC Commodity Exports Imports

0 Food and Live Animals 19.7 17.4

1 Beverages and Tobacco 1.4 0.85

2 Crude Materials, Inedible, except Fuels 8.2 11.8

3 Mineral Fuels, Lubricants and Related Materials 18.3 101.9

4 Animal and Vegetable Oils, Fats and Waxes 0.6 1.2

5 Chemicals and Related Products, N.E.S. 32.4 28.1

6 Manufactured Goods Classified Chiefly by Material 38.7 40.4

7 Machinery and Transport Equipment 124.6 83.3

8 Miscellaneous Manufactured Articles 29.2 13.2

9 Commodities and Transactions, N.E.S. 7.7 16.3

* TOTAL * 280.8 314.5tse.export.gov

Kenneth Leonard PhDFoundation for Teaching Economics

Kenneth Leonard PhDFoundation for Teaching Economicswww.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/gblec04-eng.htm

Kenneth Leonard PhDFoundation for Teaching Economics

www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/gblec04-eng.htm

Kenneth Leonard PhDFoundation for Teaching Economicswww.ic.gc.ca/eic/site/cis-sic.nsf/eng/h_00029.html#it2

Kenneth Leonard PhDFoundation for Teaching Economics

www.ic.gc.ca/eic/site/cis-sic.nsf/eng/h_00029.html#it2

Canadian Goods Trade Balance With Other Nations, 2012($CA - billions)

Country Exports Imports Trade Balance

United States 338.4 296.4 42

Japan 10.9 10.8 0.1

United Kingdom 19.8 8.3 11.5

EU 21.1 36.3 -15.2

Other OECD 18.5 36.0 -17.5

All Others 53.8 86.7 -32.9

http://www.census.gov/foreign-trade/balance/Kenneth Leonard PhDFoundation for Teaching Economics

U.S. Balance of Payments 2008($ billions)

Current Account -706.0

Merchandise trade balance -695.9Goods & Services exports 1,826.6Goods & Services imports -2,522.5

Net Transfers -128.3Net Income Payments 118.2

Capital Account +706.0

Increase in U.S. holdings of foreign assets -106Increase in Foreign holdings of U.S. assets 505,166

Statistical Discrepancy +200

http:bea.gov

Canada’s Balance of Payments 2012($ millions)

Current Account -66,944Goods & Services exports 545,825

Goods 474,422; Services 107,850

Goods & Services imports -582,273Goods 462,544; Services 83,28

Net 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

Destinations of Canadian Foreign Direct Investment

2011 (percent)

Sources of Foreign Direct Investment in Canada

2011 (percent)

United States 40 United States 54

United Kingdom 12 United Kingdom 6

Bermuda 2 Bermuda 0.3

France 1 France 30

Germany 1 Germany 3

Netherlands 1 Netherlands 9

Switzerland 1 Switzerland 3

Australia 4 Australia 1

Japan 1 Japan2

 http://bea.gov Kenneth Leonard PhDFoundation for Teaching Economics

Statistical Comparison of NAFTA Countries, 1997(In current U.S. $$)

Population(millions)

GDP(billions U.S.$)

GDPper capita

Exports(billions $)

Imports(billions $)

Canada 29.9 637.5 21,260 250.6 238.5

Mexico 95.4 401.4 4,207 121.6 122.4

U.S. 272.6 8,265.0 30,282 934.8 1,042.7

Statistical Comparison of NAFTA Countries, 2011(In current U.S. $$)

Population(millions)

GDP(billions U.S.$)

GDPper capita

Exports(billions $)

Imports(billion $)

Canada 34.5 1,736.0 50,345 539.1 561.9

Mexico 114.8 1,153.3 10,047 365.2 380.6

U.S. 311.6 14,991.3 48,112 2,105 2,665.0

http://web.worldbank.org Kenneth Leonard PhDFoundation for Teaching Economics

Hourly Compensation Costs for Workersin Manufacturing, Selected Countries, 2011 (current dollars)

Labor Costs (in $ U.S.)

United States 35.53

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

Singapore 22.60

Philippines 2.01 vwww.bls.gov

Kenneth Leonard PhDFoundation for Teaching Economics

The Magic of Markets: Trade Creates Wealth

Classroom Activity:

www.fte.org/teacher-resources/lesson-plans/efllessons/the-magic-of-markets-trade-creates-wealth/

Foreign Currency &

Foreign Exchange

Classroom Activity:

http://www.fte.org/teacher-resources/lesson-plans/efllessons/foreign-currencies-and-foreign-exchange/

The “Giant Sucking Sound”

Classroom Activity:

http://www.fte.org/teacher-resources/lesson-plans/efllessons/the-giant-sucking-sound-job-woes-or-trade-flows/

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.

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 profit by 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.

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."

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.

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.

Would you hire 6 cooks? What's the most you'd be willing to pay cook #4?

1 Kitchen - How Many Cooks?

# cooks

#pizzas made

# additional pizzas from hiring this

cook?

What happened?

0 0 0

1

2

3

4

5

6

No Cook – No Pizza !

10 10

25

45

55

55

40

15

20

10

0

-15 Get her out of the way !

Things aren’t so hectic

Extra guy – helps who ever is behind

1 baker+1 prep+1 waiter – what a system!

1 baker, 1 prep and waiter

Good cook – does everything himself

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:

Skilled Jobs

Bookkeeping

Marketing

T-shirt Design

Advertising

Shipping & Ordering

Unskilled or low-skill jobs

Taking orders

Cutting Patterns

Sewing

Printing

Labeling

Packing

Delivery

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:

Mario & Maria’s dilemma

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

YELLOW CARD WORKERSYELLOW CARD WORKERS PINK CARD WORKERSPINK CARD WORKERS

#Hired

T shirtsMade

AddedProduct

(MP)P xMP

#Hired

T shirtsMade

AddedProduct

(MP)P x MP

1st 5 1st 8

2nd 8 2nd 14

3rd 10 3rd 19

4th 11 4th 22

5th 12 5th 24

6th 12 6th 25

Round #2 – Wages Paid Round #2 – Profit Calculation

Yellow Card Pink Card # t-shirts produced (pink+yellow)

(from chart)

Worker Wage Worker Wage

Hired Paid Hired Paid X Price of t-shirts X $ 10

1st 1st = $

2nd 2nd = TOTAL REVENUE

3rd 3rd

4th 4th — $

5th 5th — TOTAL COST

6th 6th

$= PROFIT Round #2

Sub-total +Sub-total = Total cost

ProblemYou 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.

Who?Helped or hurt by

"exporting" unskilled jobs

to Mexico?

How?

Employer

US Skilled worker

US Unskilled worker

t-shirt consumer

Mexican unskilled worker

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.