Question 1

The most important reason why firms consider offshoring is to decrease their:

Accepted Answer

The most significant reason for offshoring is to save on labor costs, as many developing countries offer cheaper labor than developed countries. Offshoring is a common strategy among firms to reduce production costs and increase profitability. By moving their operations offshore, these companies can save on labor costs without compromising on the quality of their goods or services.

Question 2

Which of the following is an example of offshoring?

Accepted Answer

Offshoring involves relocating business operations, such as manufacturing or services, from one country to another in order to take advantage of lower costs, labor or resources. In the case of option C, General Motors moved its assembly operations to Mexico where labor costs are lower, making it an example of offshoring. Options A and B involve direct investment in foreign countries, while option D involves reshoring or bringing production back to the home country.

Question 3

Intel produces microchips in China and Costa Rica using subsidiaries that it owns. Mattel, in contrast, contracts with firms in several different countries to produce the Barbie doll, which it then imports to the United States. Which of the following statements about the two companies is correct?

Accepted Answer

Intel's production through its own subsidiaries in China and Costa Rica is an example of foreign offshoring, where a company relocates its business processes or production to a foreign country. Mattel's practice of contracting with foreign firms for the production of Barbie dolls is an example of foreign outsourcing, where a company hires external firms to perform certain tasks or services.

Question 4

To analyze offshoring by firms, economists line up activities that a firm must undertake to produce a product in the order of the ratio of:

Accepted Answer

Economists analyze offshoring by lining up activities based on the ratio of high-skilled labor to low-skilled labor required for the activity. This approach helps in understanding which activities are more likely to be offshored based on the skill level of labor available in different countries.

Question 5

Which of the following is the correct ranking (first to last) of the value chain by order of production?

Accepted Answer

The correct ranking of the value chain by order of production is R&D, component production, assembly, marketing and sales. This is because R&D is the first stage in creating any product, followed by component production, then assembly, and finally marketing and sales. Option A and B are incorrect because marketing and sales should come after assembly in the value chain, and Option D is incorrect because R&D should come before marketing and sales.

Question 6

An example of offshoring is when:

Accepted Answer

Offshoring involves contracting with companies located in other countries to perform specific tasks or activities. In this case, Boeing is contracting with companies across the world to manufacture components for its 787 Dreamliner aircraft, which is an example of offshoring.

Question 7

To predict which activities a U.S. firm will find profitable to offshore, we must assume that it can use relatively lower-cost labor in a foreign nation. This is usually _____ labor.

Accepted Answer

The assumption is that the U.S. firm can use lower-cost labor in a foreign nation, which typically means unskilled labor. Skilled labor tends to have more consistent and competitive wages across countries, while unskilled labor can vary greatly in cost between countries. Therefore, the most profitable activities to offshore will likely involve tasks that require low levels of skill and can be easily performed by lower-cost, unskilled labor in a foreign nation.

Question 8

The term offshoring means:

Accepted Answer

Offshoring refers to the practice of operating a facility in another nation to produce component parts or services.

Question 9

Which of the following is the correct ranking of the value chain by level of skill of the labor force (from lowest to highest skill levels)?

Accepted Answer

The correct ranking from lowest to highest skill levels typically starts with assembly, which often involves repetitive tasks that may require less specialized skills. Component production comes next as it can require more specialized skills related to manufacturing specific parts. Marketing and sales follow, demanding a different set of skills including communication, strategy, and understanding of the market. R&D (Research and Development) is placed at the highest level of skill as it involves innovation, advanced technical knowledge, and problem-solving capabilities.

Question 10

How does the offshoring model differ from the type of trade analyzed with the Ricardian and Heckscher-Ohlin trade models?

Accepted Answer

The Ricardian and Heckscher-Ohlin trade models primarily focus on trade in finished products, analyzing comparative advantage and factor endowments, respectively. Offshoring, however, involves relocating certain business processes or production stages to another country, which is not directly addressed by these models.

Question 11

The lineup of value-added activities from lowest to highest for a firm is often called:

Accepted Answer

The term "value chain" is used to describe the series of activities that a firm undertakes in order to create a product or service. This value chain includes both primary activities (such as production, marketing, and distribution) and support activities (such as research and development, information technology, and infrastructure). The order of these activities from lowest to highest value added is the value chain for the product.

Question 12

Some U.S. companies are choosing to move some operations back to the United States because lower costs of communication within the U.S. allow them to make quick changes to design and production. This phenomenon is called:

Accepted Answer

Onshoring refers to the practice of bringing back operations that were previously offshored to other countries. The lower costs of communication within the U.S. allow companies to make quick changes to design and production, which makes onshoring a more attractive option for some businesses. Insourcing generally refers to the practice of having work done within a company rather than outsourcing it, while offshoring refers to the practice of moving operations to another country to take advantage of lower labor costs. Retrenching refers to the process of cutting back on operations or expenses in order to save money.

Question 13

The provision of a service or input component part that is assembled into a final good at another location is known as:

Accepted Answer

The answer of The provision of a service or input...

Question 14

The offshoring model is mainly useful to:

Accepted Answer

The offshoring model examines the impact on wages for both high-skilled and low-skilled workers in different countries, considering the movement of jobs and tasks across borders.

Question 15

Which of the following activities in the value chain is most likely to be offshored?

Accepted Answer

The answer of Which of the following activities in the...

Question 16

Though offshoring and outsourcing are technically different, Feenstra and Taylor use the term offshoring to include:

Accepted Answer

Feenstra and Taylor use the term offshoring to include both offshoring and outsourcing activities.

Question 17

Among the activities in the value chain, assembly requires_____ labor and R&D requires _____ labor.

Accepted Answer

Assembly typically requires unskilled labor as it involves repetitive tasks that can be learned quickly and do not require specialized knowledge. R&D (Research and Development), on the other hand, requires skilled labor because it involves innovation, problem-solving, and the application of specialized knowledge.

Question 18

Which of the following activities in the value chain is LEAST likely to be offshored?

Accepted Answer

R&D is least likely to be offshored due to the need for close coordination with the company's core operations, high value of intellectual property involved, and potential risks of losing control over proprietary technologies or innovations.

Question 19

"Offshoring" is technically different from "outsourcing" because:

Accepted Answer

Offshoring refers to the relocation of business processes or production to another country, and usually involves the establishment of a subsidiary in a foreign country through foreign direct investment (FDI). Outsourcing, on the other hand, involves hiring external firms to produce goods or services, often without investment in the foreign country. Therefore, option A is the correct answer.

Question 20

What is the difference between final goods and intermediate goods?

Accepted Answer

Intermediate goods are goods that are used as inputs in the production of other goods and services. Final goods or finished goods are goods that are used for final consumption by the end-user. Therefore, the main difference between final goods and intermediate goods is that intermediate goods are not meant for final consumption, but rather for further processing or use in the production of other goods.

Quiz 7: Offshoring of Goods and Services