Question 1

According to a 2005 study of the effects of material inputs and services by U.S. manufacturing in the 1990s, what was the percentage contribution of offshoring upon overall productivity growth in the manufacturing sector?

Accepted Answer

The study found that offshoring contributed to 15% to 20% of the overall productivity growth in the U.S. manufacturing sector during the 1990s.

Question 2

Some service activities can be more successfully offshored than manufacturing because:

Accepted Answer

Services can often be delivered remotely without the need for physical transportation, making it easier and more cost-effective to offshore service activities. Additionally, advances in communication technology have made it easier and cheaper to communicate across the globe, further facilitating offshoring in the services sector. Language barriers may still exist, but they are less of a hindrance in the services sector compared to manufacturing. Government regulations and restrictions may still apply, but they are not the primary consideration in determining whether or not service activities can be successfully offshored.

Question 3

A country will find offshoring attractive when:

Accepted Answer

Offshoring becomes attractive when the international relative price of components is less than the home price of components, as this indicates that it is cheaper to acquire the needed components from overseas.

Question 4

The ability to offshore some high-skill jobs to other nations is often a factor in:

Accepted Answer

Offshoring high-skill jobs allows U.S. firms to continue the major portion of their work and employment inside the United States while reducing costs by having some tasks done in other countries with lower labor costs. It may cause unemployment in certain fields or prevent some workers from coming to the United States, but those are not the primary factors. Keeping taxes low may be a secondary benefit, but it is not the main reason for offshoring high-skill jobs.

Question 5

The U.S. terms of trade for merchandise goods _____ after 2009.

Accepted Answer

The U.S. terms of trade for merchandise goods improved after 2009, reflecting a relative increase in the prices of exports compared to imports, which can enhance a country's purchasing power on the global market.

Question 6

Offshoring of very-high-skill medical and technology services to other nations seems to contradict the value chain model of offshoring. Which of the following could be a reason?

Accepted Answer

The reason for the offshoring of high-skill medical and technology services to other nations could be that the wages of higher-skilled workers in these nations are relatively lower than in the United States. This is in line with the value chain model of offshoring, where companies seek to lower costs by outsourcing to countries where labor is cheaper.

Question 7

Which of the following statements does NOT apply to "nighthawk" firms?

Accepted Answer

The statement "In most cases, they compete for daytime jobs in the home country" is not applicable to "nighthawk" firms, as they typically operate during non-traditional hours when other firms are closed. The other statements are generally true for "nighthawk" firms.

Question 8

With the importation (offshoring) of components and exportation of R&D, what happens to total production in the economy?

Accepted Answer

Offshoring component production and exporting R&D can lead to an increase in total production in the economy because it allows for more efficient production due to specialization and can also lead to cost savings. This can result in higher profits and potentially more job opportunities in other areas of the economy.

Question 9

Service activities that lend themselves well to offshoring are ones:

Accepted Answer

Service activities that have very specific guidelines, rules, and procedures can easily be documented and trained, making it easier to train offshore workers to perform them. This reduces the need for expensive onshore labor and makes offshoring cost-effective.

Question 10

An isoquant describes:

Accepted Answer

An isoquant is a curve that shows the different combinations of inputs that can be used to produce the same level of output. Therefore, it describes the combinations of inputs that produce a constant level of output.

Question 11

The U.S. terms of trade for merchandise goods _____ from 1994 to 2008.

Accepted Answer

The U.S. terms of trade for merchandise goods improved from 1994 to 2008, indicating that the country could exchange its exports for more imports over time, reflecting an improvement in trade conditions.

Question 12

Offshoring of radiology services to countries such as India, Australia, and Israel is:

Accepted Answer

Offshoring of radiology services may create competition for American radiologists, but it is unlikely to have a significant impact on the market as radiology is a highly skilled profession that requires years of education and training. Additionally, outsourcing can actually free up American radiologists to focus on more complex cases and improve overall efficiency in the healthcare system.

Question 13

High-skill U.S. medical workers worry over losing their jobs to foreign competition. Although some of these activities can be offshored, the text makes which point about medical offshoring?

Accepted Answer

The text states that "the scope for offshoring is limited because many patient-care activities must be done onsite." This suggests that medical offshoring cannot fully replace or eliminate the need for high-skill medical workers in the U.S.

Question 14

Why is the United States more likely to offshore skilled service activities rather than unskilled manufacturing activities to India?

Accepted Answer

Offshoring skilled service activities require less physical transportation of goods, thus reducing costs associated with trade. Additionally, the relative high cost and scarcity of skilled labor in the United States make it more profitable for firms to offshore skilled service activities to countries like India, where the supply of skilled labor is abundant and more affordable. On the other hand, offshoring unskilled manufacturing activities involves physical transportation of goods and often requires more investment in infrastructure and facilities, which can further increase costs. Therefore, firms may be more hesitant to offshore unskilled manufacturing activities to countries like India where trade costs associated with such activities may be higher.

Question 15

Samuelson's example of an analysis of a fall in the relative price of R&D exports leads to a(n) _____ in the terms of trade and a _____ in export volume. Samuelson's point is that a country will be _____ than in the absence of trade.

Accepted Answer

Samuelson's analysis suggests that a fall in the relative price of R&D exports results in a worsening of the terms of trade and a reduction in export volume. Despite this, the country is still better off engaging in trade than not trading at all, as trade allows for specialization and access to a wider market, which overall benefits the economy.

Question 16

A country's terms of trade is:

Accepted Answer

Terms of trade refers to the ratio between the prices of a country's exports and imports. If a country's terms of trade improve, it means that the prices of its exports have gone up relative to its imports, allowing it to buy more imports for the same amount of exports. Conversely, if the terms of trade worsen, the country will have to export more goods to afford the same amount of imports. Therefore, choice B is correct.

Question 17

India has a comparative advantage in service exports for all the following reasons, except:

Accepted Answer

While India and the United States may have cultural and historical ties, this does not necessarily translate into a comparative advantage in service exports. The other options listed provide valid reasons for India's comparative advantage in service exports.

Question 18

As the home nation increases production of R&D by devoting more skilled resources, its productivity rises and its relative price rises. This situation creates:

Accepted Answer

When a home nation increases its productivity, especially in sectors like R&D by allocating more skilled resources, it typically leads to an increase in the relative price of its products due to higher value addition. This scenario makes offshoring more attractive for tasks that are less critical or can be produced at a lower cost elsewhere, thereby increasing the gains from offshoring. Offshoring allows the home nation to focus its skilled resources on high-value tasks while benefiting from lower costs in producing other goods or services abroad.

Question 19

The economist Paul Samuelson analyzed a scenario in which R&D production suffers from foreign competition, thus lowering its price. Samuelson notes that foreign competition in R&D will generally _____ the terms of trade and national welfare if the nation exports R&D.

Accepted Answer

According to Samuelson's analysis, foreign competition in R&D will bring down the price of R&D, which will ultimately lower the nation's terms of trade and national welfare if it exports R&D. Lower prices mean less revenue from exports, leading to a decline in welfare.

Question 20

In 2014, the U.S. surplus in service trade was approximately _____ and was _____ than that of the United Kingdom, its main service competitor.

Accepted Answer

In 2014, the U.S. had a significant surplus in service trade, amounting to approximately $180 billion, which was greater than that of the United Kingdom, making it a leading country in service trade surplus.

Quiz 7: Offshoring of Goods and Services