Economics Final Exam

Who coined the term BRICS and why?

2001 - Jim O'Neill in a paper written for Goldman Sachs Acronym came into widespread use as a symbol of a shift in global economic power away from developed G7 economies towards the developing world.

Explain some of the benefits that workers can get from working in sweatshops compared to other possible work available to them. What has recent research found regarding this traditional argument for sweatshops?

Consistent income Pays better than their other options It's better to do something to end the problem of global poverty than to do nothing

How does fair trade benefit poor countries and what are some of the costs of it?

Benefits: subsections see benefits (those who are able to access fair trade market) have money to spend to improve local communities Costs: would be money spent to be certified and who those who aren't able to access fair trade markets

Who are the 5 countries involved in BRICS and why are these countries grouped together?

Brazil, Russia, India, China, South Africa (added later). Since the 4 BRIC countries are developing rapidly, by 2050 their combined economies could eclipse the combined economies of the current richest countries of the world.

Discuss the reasons why sweatshops are so criticized. Also discuss on the other hand why sweatshops can be beneficial.

Criticized: Poor conditions, unfair payment Beneficial: sweatshops may pay higher wages than alternative jobs such as farming

Explain what a plantation must do in order to become fair trade certified.

Have to have better working conditions Have to give better wages (match average for the region) Allow them to organize into a labor group (the group decides what to do with the premium)

How do classical economists view outsourcing and dumping? Why?

Outsourcing: a company takes part of their production and outsources to another company, frees up labor to do other things (domestically or internationally = ourshored) Not a bad thing either. Dumping: imports from those countries to be cheaper in the U.S., "great, awesome, stuff for cheap"

Similar Questions: a. Who are the winners of free trade? Who are the losers of free trade? What do economists say about the winners and losers of free trade? b. Does everyone benefit from free trade? Explain. c. Explain why there are winners and losers of trade. Why does this happen?

There will always be winners and losers as long as there are products are allowed to flow freely across borders. Economists say that it is up to the government to reallocate these gains so that everybody gains from free trade. Countries can be both different and similar to benefit from free trade.

Fair Trade Premium

pot of money that the cooperatives get that is used to help the community

Define Fair Trade Price

price producers get for coffee (may or may not be binding)

What are the 3 myths about immigration? Explain why each of them is wrong.

"Immigration puts a drag on our economy"- Economically no. We have a net gain from immigrants of $36 Billion but it isn't as large as it could be for 3 reasons: 1.) Our current restrictive immigration policies 2.) Current mix of illegal immigrants can't make full use of talents. 3.) Cap of skilled workers under H1B Visa. "Immigrants steal our jobs"- Immigrants don't really steal our jobs for three reasons: 1.) Immigrants increase demand for other goods and services that in turn creates other jobs. 2.) A lot of jobs might not continue to exist in the U.S. if not for immigrant workers. 3.) Immigrants do work Americans won't (counter argument: Americans would do it if it paid better). "Immigrants depress our wages"- Not really, only the wages of the bottom (low-skilled work). "THE supply of labor" Vs. supply of different types of labor, Immigrants complement our skills

What happened in one of Nike's contractors in Malaysia?

"Recruiters in poverty-stricken countries offer desperate men and women guaranteed work in Malaysia." Upon arriving these workers were given an upfront fee putting them in immediate debt, their passports were taken, required to sign 3 year contract in lang. They couldn't read. Lived in horrible conditions (cramped, filthy, 26 men per room) and worked 6 days a week (6 australian dollars a day).

What is comparative advantage and how does it affect international trade?

A producer has a comparative advantage over another in the production of a good/service if they can produce that product at a lower opportunity cost

What are some of the disadvantages and advantages of sweatshops?

Advantages: Provides a job with consistent paychecks in comparison to inconsistent farming wages. Disadvantages: Long work hours with few days off and most sweatshops have poor working conditions.

What significance does BRICS have on our world economy? Explain your answer.

Almost half the world's population Covers more than a quarter of the world's land area over three continents Account for more than 20% of global GDP and 55% of output from developing worlds 40% of the world's total reserve is held by the four BRIC countries in 2010.

What arguments are there against free trade? Explain the pros and cons of free trade. List and explain each argument/theory that can be made for and against free trade. Who are the winners and losers on each side?

Arguments against free trade: Income distribution becomes more unequal Increased unemployment Unfair competition (dumping, currency manipulation) Human rights (sweatshops, slavery) Environmental concerns National security argument Infant industries

What does BRICs stand for? Why do they matter?

BRICs is an acronym for Brazil, Russia, India, China, and most recently added South Africa. They are important because they are the largest and most powerful developing countries that are represented around the world.

Why would China be a part of the BRICS group even though their GDP is larger than all the other members' combined?

China can hide its political demands behind a multilateral facade.(they know they're more important than the other countries)

Please explain at least 3 positive implications that Fair trade has on farmers in third world countries.

Companies agree to pay a fair price plus an extra amount called a premium Premium: a separate pot of money in addition to the price for the good Premiums can be used for schools, health clinic, etc The broader community benefits Minimum prices: a set minimum that may be binding If world prices are higher than the minimum buyers must pay the world price (price floor) Reduces risks faced by fair trade farmers stability/ access to credit Working conditions Institutional structure Environmental protection

Explain the problems that dumping and unfair competition has on other corporations. What are the differences between outsourcing and offshoring?

Dumping is considered to be unfair competition because it selling goods at lower costs than those charged at home/ below cost of production. Outsourcing - a company takes part of their production and outsources to another company, frees up labor to do other things Offshoring is internationally of outsourcing - shifting the location of a service or production of a part to a location abroad. (This can include companies who outsource to foreign companies).

What are the goals of fair trade? Provide two arguments in favor of fair trade AND provide two arguments against fair trade.

FOR: AGAINST:

Difference between Fairtrade and Fair Trade

Fair trade refers to the movement and the organizations that abide to the principles of fair trade Fairtrade describes the system governed by FLO

"First grow, then go green" Explain what does it mean. Are there any issues? Why/why not?

For Developing countries, this states that they should be able to develop economically through industrializing their country and once they're developed to a certain degree they can begin worrying about the environment. Bad for environment, ex. Shanghai

What is the difference between free trade and fair trade?

Free trade is trade without restrictions (European Union is a good example), but still has taxes and tariffs (NAFTA) Fair trade is trade in which fair prices are paid to producers in developing countries.

Describe free trade, and protectionism, and write the pros and cons for both.

Free trade: Pros: Comparative advantage: higher living standards because we have more variety Economies of scale: gives us cheaper goods Cons: Income distribution Increased unemployment (arguments against free trade)

Give a definition of free trade and explain the benefits it brings to rich countries such as the United States. What benefits does it bring poor countries?

Free trade: no restrictions on imports or exports Benefits for rich countries: Good for economic development Developed countries can export high tech goods Countries different / similar both benefit from trade with comparative advantage and intra industry trade Outsourcing Benefits for poor countries: Outsourcing- allowing you to focus on what you're good at Can export basic staples and commodities or textiles

What is the idea behind the saying "Grow Now, Go Green Later?" How does this saying relate to the Environmental Kuznets (EKC) Curve?

Get rich first then worry about the environment

Name three goals of Fair trade and explain how it can help improve the lives of producers.

Help producers in developing countries achieve better trading conditions and to promote sustainable farming

Explain how shutting down sweatshops in underdeveloped countries hurts domestic workers.

If they are taken away there is nothing to alleviate that poverty Reduces their options further Workers turn to their only other options (prostitution etc)

Poverty is a global issue that affects every country, some greatly more than others. How can the implementation of free trade help bring an end to poverty?

Implementation of free trade can help end poverty by

What two types of trade strategies might developing nations utilize? How do they work?

Import Substitution Industrialization: Substituting industrial imports with domestic production. Countries try to build up their manufacturing sector with the help of the government, countries put up barriers to protect the infant industry, (Goal: make local economy more self-sufficient.) Latin America and South Asia pursued ISI- almost completely closed the economies to rest of the world, but it was not successful Export Oriented Industrialization: Economic policy aimed at speeding up industrialization by exporting goods Force manufacturing sector to compete right away requires industries to become more efficient because otherwise they will not be able to sell abroad. The Asian tigers adopted this policy and it was very successful (propelled their growth)

Explain the difference between Intra-Industry Trade and Inter-Industry trade and provide examples as to how the United States exports benefit from both of these types of trade.

Intra industry trade: trade within the same industry/ similar products The united states imports and exports cars This gives consumers more options for cheaper goods Variety Inter industry trade: trade from different industries/ trade in dissimilar products The united states exports cars to argentina and they export beef

Who is immigration hurting in the US economy? Explain and provide examples as to whom this is affecting.

It hurts the people who are working in low skill waged jobs. Examples can be construction workers.

How are sweatshops helpful from an economic standpoint?

Menial manufacturing labor is the historical step forward in a developing economy's first moves toward prosperity. Every prosperous country today had child labor and sweatshops during the time they were still developing

What are the two institutions that the BRICS nations created? What is the purpose of each? Why did BRICS decide to create these institutions?

New Development Bank - to finance infrastructure and sustainable development projects Contingent Reserve Arrangements - to ride over membres in financial difficulties - Created to replace World Bank and International Monetary Fund - To U.S. - Western Centric, give the developing world "short shift"

What are the three patterns of trade? Explain.

North north trade: trade between developed countries North south trade: trade between developed and developing countries South south trade: trade between developing countries

Why is immigration good for the economy?

People from other countries can help fill the jobs in the economy that the domestic workers can fill or do not want to work in.

As a whole what are some pros and cons of sweatshops? What are the conditions of most sweatshops in Asia? How are these conditions similar or different to the original sweatshops in England (hint: this question requires information from Travels of a T-shirt)

Pros: Cons: Conditions of sweatshops in Asia: run down, bad, dirty SImilar or different from England:

Explain how fair trade can improve conditions in developing nations.

Provides the opportunity for farmers to be paid very well for their hard work and not have to work in sweatshops.

What are the advantage and disadvantages of protectionism?

Short run: saves domestic jobs Long run: slows economic growth Protectionism is like economic sanctions We say it is a punishment to the other countries ... but it's also the same punishment for ourselves?

In what ways does Immigration help the economy?

The high skilled immigrants are innovative while the low skilled immigrants are mobile, Immigrants bring in a net gain of $36 Billion.

Why was South Africa included in the BRICS organization

The original BRICs had no African countries The body wasn't representing the developed world Two could've worked - Nigeria or South Africa

Do immigrants take jobs away from American workers? What about the wages? Discuss

They do take some jobs but also fill in the jobs they don't want and aren't able to fill by just the domestic workers in the United States. Wages can sometimes be affected in the low skilled jobs due to the immigrants willing to work in those jobs for cheaper wages.

What is free trade? How does it make us richer? How do consumers benefit from free trade? How do poor countries benefit?

Trade makes us richer We trade with others because it frees up time and resources to do things that were better at Productivity makes us rich Specialization makes us productive Consumer benefit from free trade Consumers have more choices for cheaper goods Equivalent to raising their income Poor countries benefit from free trade Gives poor countries access to markets in the developed world Export industries pay higher wages Foreign companies introduce capital, technology, and new skills We can make sure the winners write checks to the losers Relocate them to where there are jobs Development assistance Educate

What is the aim of fair trade? How does fair trade affect farmers at both the individual/plantation level?

We be to send the message of the farmers being paid accordingly and fairly for their hard work. It could be seen as a moral reason.

Define Fair Trade:

a labeling initiative aimed at improving the lives of the poor in developing countries by offering better terms to producers and helping them to organize

Define Fairtrade

describes certification and labeling system governed by flo (fairtrade labeling organizations international)