Global Final

What is mitumba? Why do mitumba merchants like Geofrey Milonge prefer to purchase bales of clothing sorted in the United States or Europe, rather than in Africa?

"clothing thrown away by Americans and Europeans" Page 229 American bales are less likely to have the good finds skimmed off and there is less junk

What non-market factors partially explain the surge in Chinese apparel imports to the United States that occurred in 2005?

"surges displayed more about politics than they did the markets" Page 198 Fear among Chinese producers that the gate would not stay open long Surge was a neogating tactic for when quotas were put back in place. "It would be best to get the base up up dramatically as possible"

The chapter reports data from several studies that estimate the dollar cost of "saving" a US textile and apparel job through trade protection. What are those costs estimates? Who ultimately bears this cost?

$88,000 per year in the mid-90s for each job In 2002, it cost $174,825 per job saved. The cost falls "disproportionately on the lower-income workers it was designed the protect." Page 175

What was the selling price per pound of used T-shirts in 2008? Have these prices been on an upward or downward trend? Why?

80 cents per pound.

Market Power

Ability of a single economic actor to have a substantial influence on market prices

What is an "informal" economy? Why do governments want to encourage citizens to move out of the "informal" economy and into the "formal" one?

An informal economy is not taxed or monitored by the government. They are not regulated or protected. Government encourages a formal economy so they can regulate and benefit from business through tax revenues, increases in GDP, and control the market to their benefit (EX: lobbyist help reelection). Mitumba is an example of an informal economy. Tanzania's institutions are not developed enough to properly care for a formal Mitumba sector.

Positive externalities

Benefits experienced by third parties

Cargo shipping rates from China to the United States are significantly higher than rates from the United States to China. What economic realities drive this price differential and how could the differential threaten the US dominance of the used clothing trade?

Chinas lower costs, Chinas more restrictions on imports/exports (export processing zones), and American consumption habits and high production cost drive the price difference. "The billions spent on French wine, German cars, and Chinese shirts was not only unreciprocated, it left hundred of ships begging for something to ship back." If the EPZs opened used clothes, low labor costs would give China an advantage in grading, sorting, and selling used clothes. Stublin relies on the Auggies (domestic protectionist) in China and the extra time for the trip to China to protect him.

Negative externalities

Costs experienced by third parties

Briefly explain the arguments used by the critics of the mitumba trade. Who are the main beneficiaries when mitumba imports are banned? Who is harmed by such policies?

Criticisms include that mitumba shrinks employment in African textile factories, prevents development boost brought by industrial revolution from textile manufacturing, middlemen profiting from poverty, and the humiliation argument. (Pages 240, 243, 245). Another criticism is markets exploiting charity and customers. No one benefits truly. Market is the most efficient way to allocate resources. African customers and mitumba suppliers (American, European, and African sellers), and African textile employees are harmed.

Discuss the various rules that governed dress in 18th century Britain. Who was helped by these rules? Who was harmed?

Domestic producers of wool textiles were helped while consumers and cotton textile production in India were harmed. Laws were set up to govern the way people dressed.

Why did Gulam Dewji ultimately abandon the mitumba business? In what ways is his story encouraging?

He had a comparative advantage focusing his time on his other markets which were more profitable (such as real estate). This is encouraging because mitumba gave him a foothold in profitable businesses which allowed for investing. Mitumba was his way out.

Why does the United States export used clothing? That is, what has engendered the emergence of a used clothing export industry in the United States?

It is supplied by US wealthy suburb who need room in their closets for the next new purchases. This is driven by the consumerism culture of the US. The clothes are demanded by vintage markets, Japanese Pop Culture, and African families who can buy clothes for cheap.

The author writes that the sorting process at Trans-America depends upon the "tacit knowledge" of its workers. What does this mean and why is it important in this industry?

It is the ability to pick out "snowflakes". Snowflakes are unique clothes that sell in vintage markets for higher price. If they can't spot what is trending, they lose money

The US has traditionally used access to the US apparel consumer as "currency" to achieve other goals. Explain this political tool.

It offers lower tariffs in order to return favors and gain allies. "intended to win in the sensitive region of the Middle East" Page 176

What does Thomas Friedman mean when he states that Africa has the right "operating system" and improving "hardware" but lacks the appropriate "software?"

Operating system= capitalism Hardware= roads and ports Software= police, courts, enforceable laws (institutions) The poor institutions was holding back substantial development

What is the "wink and nod" that the author refers to?

Polticians get votes by making promises

Consider the story about 18th century woolen workers in Britain. In what way did "Protectionist dinsosaurs launch the modern world?"

Protectionist lobbied for laws such as "calicos printed or painted in Persia, China, or East Indies shall not be worn in the Kingdom of England" Page 210. People wanted a way around wearing hot wool in the summer, so the market of printing calicoes arose in England as an unintended consequence. This market brought the Industrial Revolution. In short: Law blocked wearing dyed cotton>> imported cotton and dyed in in England>> new market arose>> innovations to manufacture textiles of cotton>> new tech and factories>> industrial revolution

What impact do quotas have on the quality of textile and apparel imports entering into the US? In what way does this impact suggest a self-defeating policy?

Quotas are resold for profit in countries "If the 1.5 Billion in Chinese quota could be allocated to instead to the 185,00 US textile workers who lost their jobs, each worker could be paid 8,000 in benefits" Page 181 They do not protect domestic workers. The quality of the shirt has been raised so the profit margin was higher and low-end producers are shifting to high-end products.

Monopoly

Single seller of good/service.

The author argues that trade protection in the textile and apparel industry has "imperiled rather than enhanced" American competitiveness in this industry. Explain the reasoning behind this conclusion.

The alphabet armies are their own worst enemies. Each industry lobbied for their own industry which raises cost for the next industry. (EX: Yarn lobbying raising cost for textile production). By the time it reaches the end of the production chain, the cost is higher than the original for US producers. "The AYSA lobbied for tariffs and quotes on yarn imports, which have limited the ability of American fabric producers to obtain the best yarn the best prices." Page 174 The tariffs and quotas increase cost for US apparel producers and limit their ability to respond to changing demands. Page 174

What is an externality?

The costs or benefits of a market activity that affect a third party

What does the author mean when she notes that there is perfect price discovery in the mitumba markets? What explains the flexibility in pricing in the mitumba markets?

The prices vary greatly according to size, color, condition, and income. The pricing reflects the true value of the clothes. This is due to near perfect competition. The competition causes highly flexible pricing because of the many alternatives. Buyers can buy from whoever. With little regulation, the market can find true equilibrium.

what is a market failure?

When the allocation of goods and services by a free market is too much or too little

explain the carrot vs. stick metaphor

a carrot is a treat which is a positive incentive a stick is a punishment which is a negative incentive

define property rights

ability to exercise control over a resource

how did farmers trigger market-based reforms in 1978 China?

communist farmers engaged in a secret agreement which allowed the families to keep surplus production which gave them an incentive to produce as much as possible, government caught them due to the fact they produced way past their record and the rest of China

explain the process which allocates resources in a market economy

competition among alternative uses leads to competition inside markets which generates prices and indicates efficient resource allocation

Prices help do what?

condense a large amount of info about the market into a single variable which allows us to make economic decisions without knowing every detail of the market

in relative homogenous goods market firms can't raise prices because?

consumers will find alternatives

making firms pay for negative externalities would effect supply how?

decrease it (shift left)

most command economies today are either _____

dictatorships or embracing aspects of market economies (Mixed economies)

Under a command economy, the state decides?

everything (down to the paint color of the tractors)

in a market economy, government does what?

focus on public goods provision rather than coordinating economic activity

public goods bring the problem of _______ which are _____________.

free riders those who use a good/service even though they have not paid for it.

In a command economy, power is? (concentrated or dispersed?) Property rights are?

highly concentrated; eliminated

why are property rights useful for an economy?

implement a system of reward for the producer who can make a profit which incentivizes producers to put resources to efficient uses which creates a functioning market

what are the criticisms of a command economy?

inefficient decision making due to lack of info from market lack of property rights lack of incentives restriction of political freedoms

supply with externalities is considered over optimal because?

it does not take into the true cost

typically, market power is temporary unless?

it is granted by the goverment

property rights changes the treatment of scare resources because

it makes producers put skin in the game

what are the incentives that come with property rights?

maintain, protect, conserve, and trade (voluntarily exchange)

Because of scarcity, we must?

make choices

what is the criticism of a market economy?

market failures

why are there no price signals under a command economy?

no property rights so no firms and therefore, no competition

public goods are?

non-rival and non-excludable

positive externalities indicate

not enough is being produced/consumed

how do property rights help trade

ownership is clearly defined

what causes externalities?

poorly defined property rights

in a command economy, consumers cannot reveal their ________ because there is no _________

preferences competition

high/low value uses are determined by what?

price people are willing to pay for a good/service

markets cannot exist without

private property

what incentives are lacking in a command economy?

property rights, profit motive, motive to innovate and conserve

what are the three market failures?

public goods, externalities, and market power

How is scarcity the basic economic problem?

resources are limited; wants are unlimited

Why is supply and demand important to a market economy?

reveals market equilibrium which tells the market price and shows which market to allocate resources to "price and what market to allocate resources to"

in a market economy, resources are allocated to various uses based on?

supply and demand

What is a command economy?

the State owns the factors of production (land, labor, capital)

What is a market economy?

the factors of production are privately owned by individuals/firms

competition will diminish monopoly except when?

there is a high barrier to entry

why do we get less than the optimum amount of public goods?

they can't continue to produce of they can't collect revenue

What is a dictator's goal and how may it affect decision making?

to remain in power; influence their decisions to sway towards those that will keep them there

What makes a command economy inefficient?

too many decisions to be made by a few people which takes too much time and energy

negative externalities indicate

too much is being produced/consumed

due to lack of market indicators, command economies do not know the?

value of the different uses of their resources

what is a market?

where voluntary transactions take place between individual actors