Video transcript
Work It Out, Chapter 7, Question 1
(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
This problem will ask you to solve for the costs of production of different activities in the United States and Mexico, as well as the costs of activities imported by the United States from Mexico with trade costs of 20 percent, 30 percent, and 50 percent, and to fill in a chart with this information. Let’s look at the information given.
(Description)
The following text is written: Wages in the United States: Low-skilled: 10 dollars per hour. High-skilled: 25 dollars per hour. Wages in Mexico: Low-skilled: 1 dollars per hour. High-skilled: 5 dollars per hour.
(Speaker)
We’re told that the wages of U.S. low-skilled workers are 10 dollars per hour and those of high-skilled workers are 25 dollars per hour, and that the wages of Mexican low-skilled workers are 1 dollar per hour and those of high-skilled workers are 5 dollars. These values are made up to be convenient, not realistic. We’re also given the hours of labor used in each activity, per unit of output.
(Description)
The table labeled Hours of Labor Used in Each Activity (per unit of output) is briefly shown. The table consists of 4 columns: Assembly, Component Production, Office Services, R&D. The table consists of 3 rows: Low-skilled labor, High-skilled labor, High-skilled/Low-skilled ratio. The column Assembly has the following data: Mexico: 24, U.S.: 6; Mexico: 4, U.S.: 1; one-sixth. The column Component Production has the following data: Mexico: 16, U.S.: 4; Mexico: 4, U.S.: 1; one-fourth. The column Office Services has the following data: Mexico: 16, U.S.:4; Mexico: 8, U.S.: 2; one-half. The column R&D has the following data: Mexico: 4, U.S.:1; Mexico: 40, U.S.: 10; 10 over 1.
(Speaker)
With this information, we can now compute the costs of production of each activity and fill in the chart.
(Description)
The following table is shown. The table consists of 4 columns: Assembly; Component Production; Office Services; R&D. The table consists of 5 rows: Mexico; United States; Imported by United States from Mexico, Trade costs equals 20 percent; Imported by United States from Mexico, Trade costs equals 30 percent, Imported by United States from Mexico, Trade costs equals 50 percent. The column Assembly has the following data: 44 dollars, 85 dollars, 52.8 dollars, 57,2 dollars, 66 dollars. The column Component Production has the following data: 36 dollars, 65 dollars, 43.2 dollars, 46.8 dollars, 54 dollars. The column Office Services has the following data: 56 dollars, 90 dollars, 67.2 dollars, 72.8 dollars, 84 dollars. The column R&D has the following data: 204 dollars, 260 dollars, 244.8 dollars, 265.2 dollars, 306 dollars.
(Speaker)
The cost of any given activity in any given country is equal to the number of hours of low-skilled labor required for that activity multiplied by the hourly wage for low-skilled labor plus the number of hours of high-skilled labor required for that activity multiplied by the hourly wage for high-skilled labor. For example, the cost of assembly in Mexico is equal to 24 hours of low-skilled labor multiplied by 1 dollar per hour plus 4 hours of high-skilled labor multiplied by 5 dollars per hour, which is equal to 24 dollars plus 20 dollars equals 44 dollars. To determine the cost with trade costs included, you multiply the cost of production for any given activity in Mexico by the trade cost percentage and then add that to the activity cost. For example, to find the total cost of assembly in Mexico with 20 percent trade costs, multiply 44 dollars by 20 percent and add 44 dollars, which is equal to 8 dollars and 8 cents plus 44 equals 52 dollars 8 cents. Using this method, we can complete the chart as shown.