Question

For Week 6 you will find two topics. Select one topic, then post and concisely defend your view. You may post to both topics, but are required to only select one for your initial post. Be careful to identify the positive reasons for your normative position. Read and respond to your fellow student's postings at will. The topics to choose from are:

1. Examples of Outsourcing. Identify one example of outsourcing that you have observed or desire to research. Be certain to apply the economic analysis of Chapter 28 in your post and tell us what you believe was the most significant economic factor in the outsourcing you described. Examine the labor and product markets involved. Lastly, should there be any changes you would favor to any laws or regulations that accommodated the outsourcing?

2. Determinants of Income Differences. Identify one of the determinants of income differences as enumerated in Chapter 30 which you have personally observed or desire to research. Be certain to tell us what you believe was the most significant economic factor in determining the wages for the labor market you selected. Lastly, should there be any changes you would favor to income policies and why?

Answer 1

Part 1)

Outsourcing simply refers to a company or a country giving away some part of its production process to other players in the market. Usually when the cost of production within a company is higher than it would be if contracts were given to manufacture the product, this method is used for cost benefits to a company.

One evident source of outsourcing happens to be when companies in developed parts of the world such as the United States or United Kingdom, give away some part of their production process to other companies located out of China, simply because of the fact that the cost of labour in the country is relatively a fraction of the price of United States.

The most significant economic factor, which determines the outsourcing described is the price or cost at which a company is able to produce a product or a service when it outsources the same. It is a known fact that labour laws in developed countries are stringent and they do not allow for any flexibility. Therefore, in the interest of consumers and to increase profits, cost is one of the most significant economic factors which helps in deciding on outsourcing in an economy.

Mostly, the labour markets involved include low skilled jobs for which labour force in population rich countries such as China is a fraction of what it would be in developed counterparts. All major types of industries are allowed to be outsourced some of which include the likes of technological products, plastic products etc.

Now, when it comes to laws on outsourcing, most outsourcing which takes place within the economic boundaries of a country is good for business. However, to curtain production going abroad, we need neutral policies to be had with our business partners. For example, the United States felt the need to put trade tariffs on countries such as India which were taking away business from local manufacturers of goods such as iron and steel.

Therefore, we can conclude by saying that one great method of controlling over outsourcing to other countries is via having trade tariffs on countries which have an unfair advantage.

Part 2)

Income differences refer to the differences in payments which each individual gets on account of the level of skills which they possess and the demand and supply of the selected skill in the market. Due to income differences there are numerous classes of people in any economy such as the elite, the middle class and the lower sections of the society.

The demand and supply are the most important element which determines the income difference in the society, the demand is further determined by the concept of skills and further selling possibility. For example, the demand for a doctor in the market is much higher than its supply, thus reflecting the wages which they receive which are much higher than normal people.

On the other hand, the supply for manual laborers happens to be much higher than their demand and therefore the price which they get in the markets is very low.

In simple words, higher the demand higher the prices and lower the demand lower the prices or wages. This further determines the difference in wages wherein those that have higher demand are at the top and vice versa.

Now, when we look at income differences, the poor sections of the society remain poor unless there is an upgradation of their skills and their access to education, healthcare etc. is higher for this a law for minimum wages must remain stringent in the economy as it guarantees income to people which is based on current prices for all of the above listed services.

Minimum wage laws, set a mandatory payment which must be paid to the most vulnerable sections of the society and help in increasing their access to facilities such as education, healthcare etc. This then helps in reducing the income inequality as people in the lowest sections of the society have higher access to resources which would help them in levelling up and reducing the gap as they acquire skills which are higher in demand due to higher facility access such as education.