C. Market structure and trade
2. Trade when there is product variety

    Extra variety can be a 2-edged sword:
    Akst (2003), The joy of thinking globally 
    Reviews Tyler Cowen's "Creative Destruction: How Globalization Is Changing the World's Cultures"

    Which passage from the Akst reading do you agree with most?
    Passage 1: "dumbed-down American TV, movies, music and even food are sweeping away rich local cultures."
    Passage 2: "global trade and communication are enriching all the world's cultures"

    How should we address globalization and variety?

3. Trade when there are economies of scale

    Economies of scale => a firm's average costs fall as its output rises

    Example: Monopolistic competition: firms sell differentiated products (brands), but entry is easy

Ex: Babcock wine:     Differentiated product => demand slopes down, so Babcock can raise price without losing all consumers     Easy entry => Babcock can't earn long-run profits by charging consumers high prices     Df: (1) larger due to sales to EU consumers     (2) more elastic due competition from EU producers     Customers in both markets get more variety at a lower price

    Trade gain #6: Trade can lower costs and prices in industries with economies of scale.

III. International factor migration

    Difference now: factors of production move internationally instead of just the goods and services they produce

    Examples
    (1) Labor: Turks in Germany / Pakistanis in Norway
        Illegal immigrants in the US: (LAT, 3/10/01): "New data suggest that the United States has nearly twice the number of undocumented immigrants than officials thought--possibly 11 million or more, compared with earlier estimates of 6 million. If so, then about 1 in 25 U.S. residents is an illegal"
    AER, 5/99: Immigrants = 17% of US labor force w/ < HS education

    (2) Foreign investment by multinational corporations (MNCs)
    --Taking the national savings of the home country and using them to finance plant and equipment construction abroad
    --NBER Winter00/01: FDI production = 7-8% of world output in 1995 versus 4.5% in 1970
    In US: jobs lost because of outsourcing by US MNCs virtually matched by foreign MNCs in the US

    Why do factors migrate? an economic reason: to raise income

A. Labor migration

Ex: debate in Leimert Park -- Immigration Forum Gets Intense
    Are the concerns and conflicts valid or not?

    In the U.S., there is a large overlap between issues of race, ethnicity and socioeconomic status.
    Our least skilled workers tend to be disproportionately underrepresented minorities, and they are the most at risk with freer trade.
    Immigration has similar effects, but it has additional complications for unskilled immigrants who are also disproportionately underrepresented minorities.

    See labor migration worksheet