1. In a world without trade, what would American consumers have to pay for Logitech’s products? The costs American consumers would have to pay for Logitech products would increase significantly in a world without trade. This is due to the face that production, assembly, resources, and sale of their products would all have to be conducted in the US. Logitech would no longer be able to rely on China for cheap labor and assembly, or Taiwan for efficient and cheap manufacturing. Therefore these increased expenses would require a rise in retail price for the consumer. 2. Explain how trade lowers the costs of making computer peripherals such as mice and keyboards. Trade helps in reduction of product prices due to following reasons: ? Components are procured from any part of the world where they can be produced/manufactured at the best cost. (Motorola plant in Malaysia makes the mouse’s chip; Agilent Technologies supplies optical sensors) ? The intellectual capital going into any product is created at the place where the right talent is available. (Ergonomics design is done in Ireland, software programming is done in Switzerland and Fremont) The actual assembling/manufacturing is done at the place where is can be done most cost effectively. (Assembling is done in Taiwan and China) ? The products reach the customers the most efficient way by taking the services of the most efficient logistics company. (Marketing and operations from Fremont) 3. Use the theory of comparative advantage to explain the way in which Logitech has configured its global operations. Why does the company manufacture in China and Taiwan, undertake basis R in California and Switzerland, design products in Ireland, and coordinate marketing and operations from California? David Ricardo’s theory that states a country should specialize in the production of a good that it produces most efficiently and buy those at which time it is least efficient. Manufacturing takes place China and Taiwan because they have cheap and qualified labor, a well developed supply base, and a rapidly expanding consumer market. These factors of endowments make China more productive at making computer peripherals. Basic R takes place in California and Switzerland because workers are more skilled and productive at R. Logitech designs products in Switzerland because this is where their most skilled designers are located. Since California also houses many large corporation, it makes perfect business sense for Logitech to have their marketing operations here. 4. Who creates more value for Logitech, the 650 people it employs in Fremont and Switzerland or the 4,000 employees at its Chinese factory? What are the implications of this observation for the argument that free trade is beneficial?
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