Trade Choices You have $1,000 to spend and your alternatives are to: Purchase one Canadian made canoe and one Canadian made bicycle. or Purchase one Chinese made television, one Korean made bicycle and two cases of French wine. or Use the $1,000 for investment in the stock of a U.S. company. Which do you choose to do?

Kenneth Leonard PhD Foundation for Teaching Economics

Apples and Oranges Apple price $.70/lb Orange Price $.70/lb Washington Rancher 20 acres yields Apples 50 bu/acre Oranges 1bu/acre Florida Rancher 20 acres yields Apples 2bu/acre Oranges 40 bu/acre Kenneth Leonard PhD Foundation for Teaching Economics

YearGDP Total Exports Total Imports Canada’s GDP and Trade 2007 $$ billions Source: World Bank Kenneth Leonard PhD Foundation for Teaching Economics

US China UK Japan Mexico Netherlands S Korea Germany Top Canadian Trade Partners Total Trade: Exports Plus Imports Rank by Exports( CA $--billions) Source: Industry Canada Trade Data Online (TDO)Kenneth Leonard PhD Foundation for Teaching Economics

United States’ Trade with Canada, 2011 in billions of dollars 1-Digit SITC CommodityExportsImports 0 Food and Live Animals Beverages and Tobacco Crude Materials, Inedible, except Fuels Mineral Fuels, Lubricants and Related Materials Animal and Vegetable Oils, Fats and Waxes Chemicals and Related Products, N.E.S Manufactured Goods Classified Chiefly by Material Machinery and Transport Equipment Miscellaneous Manufactured Articles Commodities and Transactions, N.E.S * TOTAL * tse.export.gov Kenneth Leonard PhD Foundation for Teaching Economics

Kenneth Leonard PhD Foundation for Teaching Economics

Kenneth Leonard PhD Foundation for Teaching Economics

Kenneth Leonard PhD Foundation for Teaching Economics

Kenneth Leonard PhD Foundation for Teaching Economics

Canadian Goods Trade Balance With Other Nations, 2012 ($CA - billions) CountryExportsImportsTrade Balance United States Japan United Kingdom EU Other OECD All Others Kenneth Leonard PhD Foundation for Teaching Economics

U.S. Balance of Payments 2008 ($ billions) Current Account Merchandise trade balance Goods & Services exports 1,826.6 Goods & Services imports-2,522.5 Net Transfers Net Income Payments118.2 Capital Account Increase in U.S. holdings of foreign assets -106 Increase in Foreign holdings of U.S. assets 505,166 Statistical Discrepancy

Canada’s Balance of Payments 2012 ($ millions) Current Account -66,944 Goods & Services exports 545,825 Goods 474,422; Services 107,850 Goods & Services imports -582,273 Goods 462,544; Services 83,28 Net Transfers -3,671 Net Income Payments -26,824 Financial Account +63,590 Net Acquisition of Financial Assets -119,093 Net Incurrence of Liabilities 182,683 Statistical Discrepancy 3,354 statcan.gc.ca Kenneth Leonard PhD Foundation for Teaching Economics

Destinations of Canadian Foreign Direct Investment 2011 (percent) Sources of Foreign Direct Investment in Canada 2011 (percent) United States40United States 54 United Kingdom 12 United Kingdom 6 Bermuda France 1 30 Germany 1 3 Netherlands 1 9 Switzerland 1 3 Australia 4 1 Japan Kenneth Leonard PhD Foundation for Teaching Economics

Statistical Comparison of NAFTA Countries, 1997 (In current U.S. $$) Population (millions) GDP (billions U.S.$) GDP per capita Exports (billions $) Imports (billions $) Canada , Mexico , U.S , , ,042.7 Statistical Comparison of NAFTA Countries, 2011 (In current U.S. $$) Population (millions) GDP (billions U.S.$) GDP per capita Exports (billions $) Imports (billion $) Canada34.51, , Mexico114.81, , U.S , ,1122,1052, Kenneth Leonard PhD Foundation for Teaching Economics

Hourly Compensation Costs for Workers in Manufacturing, Selected Countries, 2011 (current dollars) Labor Costs (in $ U.S.) United States Canada36.56 France42.12 Germany47.38 Italy Japan35.71 United Kingdom30.77 Korea Mexico 6.48 Singapore22.60 Philippines 2.01 v Kenneth Leonard PhD Foundation for Teaching Economics

The Magic of Markets: Trade Creates Wealth Classroom Activity: of-markets-trade-creates-wealth/

Foreign Currency & Foreign Exchange Classroom Activity: currencies-and-foreign-exchange/

The “Giant Sucking Sound” Classroom Activity: giant-sucking-sound-job-woes-or-trade-flows/

Background The demand for labor is derived demand. The demand for workers is dependent upon the demand for the product the workers make. If no one wants to purchase the product, then there will be no demand for workers to produce it.

Background The market price of the product affects employers' hiring decisions. If the cost of labor is so high that an employer cannot make a profit by selling the product at the market price, then the employer will not be willing to pay for the labor. In simplest terms, market prices influence the wages that employers are willing to pay.

Background Wages are also influenced by productivity (output per man-hour of labor). In hiring any particular worker, the employer must ask how much the worker will contribute to the business in terms of output. Economists call this the "value added” or “marginal value."

Productivity Worker productivity is determined by a number of factors, some under control of the worker himself and some the result of the conditions of employment. Examples of productivity factors include: the worker's physical abilities; the worker's level of education; the type and amount of equipment (capital) available; other factors and conditions in and around the particular job location.

It's also important to understand that how many other workers have already been hired affects a worker's productivity. In some cases, hiring additional workers increases productivity as each worker is able to specialize. At some point, however, hiring additional workers results in diminishing marginal returns, meaning that the additional (marginal) output attributable to the next worker hired will necessarily be less than that of the worker hired before him. A simple example of this is the "too many cooks spoil the broth" syndrome.

Would you hire 6 cooks? What's the most you'd be willing to pay cook #4? 1 Kitchen - How Many Cooks? # cooks #pizzas made # additional pizzas from hiring this cook? What happened? No Cook – No Pizza ! Get her out of the way ! Things aren’t so hectic Extra guy – helps who ever is behind 1 baker+1 prep+1 waiter – what a system! 1 baker, 1 prep and waiter Good cook – does everything himself

Scenario In college, Maria and Mario started a t-shirt business out of their parents' garage. Now they've graduated, and would like to expand the business and become the bosses instead of the "do-everything" people. They've made a list of the different tasks involved in the business - most of which they now do themselves. They figure there are 2 kinds of tasks in the t-shirt business:

Skilled Jobs Bookkeeping Marketing T-shirt Design Advertising Shipping & Ordering Unskilled or low-skill jobs Taking orders Cutting Patterns Sewing Printing Labeling Packing Delivery

Every person they hire means one less thing they have to do themselves - and they can choose to do the things they enjoy most - like the design and marketing, for example. The question is how many people to hire. Based on past experience, here's what they think will happen when they begin to hire workers: Mario & Maria’s dilemma

Output, Additional (Marginal) Product, and Additional (Marginal) Revenue T-shirt price (P) = $_________ YELLOW CARD WORKERS PINK CARD WORKERS # Hired T shirts Made Added Product (MP) P xMP # Hired T shirts Made Added Product (MP) P x MP 1 st nd rd 103 rd 19 4 th 114 th 22 5 th 125 th 24 6 th 126 th 25

Round #2 – Wages PaidRound #2 – Profit Calculation Yellow CardPink Card # t-shirts produced (pink+yellow) (from chart) WorkerWageWorkerWage HiredPaidHiredPaidX Price of t-shirtsX $ 10 1 st = $ 2 nd = TOTAL REVENUE 3 rd 4 th — $ 5 th — TOTAL COST 6 th $ = PROFIT Round #2 Sub-total + Sub-total = Total cost

Problem You are a member of your firm's Make It Work Circle. The firm has adopted a profit-sharing scheme and created the MIW Circle in which employees, management and ownership meet regularly to discuss the business. The profit-sharing agreement means that employees have a stake in the success of the business - if the firm makes more profit, the employee gets more income - and therefore, employees participate enthusiastically in the MIW meetings. The market for t-shirts has grown in response to fashion trends and the employer has found a backer willing to provide the investment funds necessary to triple the size of the company. However, the company's personnel recruiter has reported that it's practically impossible to hire yellow card workers. The employer has called an MIW meeting to brainstorm solutions to this labor dilemma. Make a list of things the company could do to take advantage of the opportunity to expand.

Who? Helped or hurt by "exporting" unskilled jobs to Mexico? How? Employer US Skilled worker US Unskilled worker t-shirt consumer Mexican unskilled worker

Apparel Sourcing, Cutting, Sewing, Distribution "A Relationship of Trust and Profitability"  The North America Free Trade Agreement has opened new opportunities for trade in the apparel industry between Mexico and the United States.  Peñyasa was incorporated in 1997 as a garment manufacturing company to service the U.S. market.  Peñyasa's cutting and sewing plant is a world class facility with an output capacity of 60,000 dozens per month with 450 operators.  Peñyasa's management team is a blend of experienced professionals from different fields that fully understand the concept of global sourcing.  Our labor costs are low - average 50% - 75% below comparable US rates. Work quality is high. We guarantee to cut your costs by 30-50%!  Sourcing with Peñyasa will significantly reduce costs and add value to your entire operation, allowing you to concentrate on sales, marketing, and management.