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Q: US foreign tobacco subisdies ( No Answer,   4 Comments )
Subject: US foreign tobacco subisdies
Category: Reference, Education and News > Homework Help
Asked by: cyndidoll-ga
List Price: $20.00
Posted: 18 Jul 2006 15:44 PDT
Expires: 17 Aug 2006 15:44 PDT
Question ID: 747525
Multinational corporations are continually seeking sources of
comparative advantage by investing in developing countries. Sometimes,
they are initially willing to pay a high price for that advantage. For
example, U.S. tobacco companies create strong incentives for local
farmers in developing countries to grow tobacco instead of crops used
for domestic food production by offering underwritten loans, subsidies
for startup costs, and a guaranteed demand for their tobacco crops.
The following questions pertain to the foundations of modern trade
theory and comparative cost of production and pricing decisions:

Explain why the U.S. would subsidize the short run costs of production
for tobacco farmers in foreign countries. Do these practices guarantee
the tobacco farmers a profit in the short run? Long run? Explain.
How does this practice shift the equilibriums (price and output) for
tobacco and domestic food items (analyze both the local and
international effects)?
In the case with Acme Motors, what are the production gains to the
entire company from the facility in Nuevo Laredo, Tamaulipas
specializing in Autoturbo Quattro engines (i.e., why do they just make
engines in Nuevo Laredo rather than the entire auto)?
Why would Acme Motors shift its production of engines from Detroit to
Mexico and then shift the engines back to the U.S. to be assembled
into the finished auto?
What are the gains and losses for consumers in these types of
international production and trading patterns?

I need answer ASAP!
There is no answer at this time.

Subject: Re: US foreign tobacco subisdies
From: pinkfreud-ga on 18 Jul 2006 16:43 PDT
Some of the material here may be useful as you prepare your
schoolwork. This deals with tobacco subsidies by the EU, but the
concept is the same:
Subject: Re: US foreign tobacco subisdies
From: pinkfreud-ga on 18 Jul 2006 17:18 PDT
You might want to note that a similar question, priced at $50, did not
get an answer in May of this year:
Subject: Re: US foreign tobacco subisdies
From: oldgraygradstudent-ga on 08 Sep 2006 22:22 PDT
The market speaks: no answer at $50, no answer at $20... Keep bidding
lower and lower to get more responses, right?!!
Subject: Re: US foreign tobacco subisdies
From: myoarin-ga on 09 Sep 2006 04:18 PDT
As to the part about Acme Motors:
Production costs for engines in Mexico are significantly lower than in
Detroit, making it advantageous establish the production facility
there  - most probably with government subsidies to attract plants and
increase employment.  This factor confuses the simpler economical
calculations that would otherwise apply.  For example, if Acme decided
it needed a new engines production facility, it would not be shifting
production from one in Detroit, but making its decision based on the
relative cost of establishing the new plant in one place or the other.
 Plant construction costs would be different, and subsidies might
apply one place and not the other.
That can easily make it worth shipping the engines back to Detroit  -
and maybe shipping US-made parts to Mexico.
Establishing a new plant for the total production of cars in Mexico
would be different, if Acme has an adequate facility in Detroit  - a
major investment -  that would be under-utilized or have to written
off if chassis production was shifted to Mexico.  Included in such a
calculation would be the much higher cost of shipping completed autos
back to the States.

AND, import tariffs for complete vehicles could exist (I don't know).

To your last question:  Opinions may very on this, but as a believer
in free trade, my opinion is that cheaper production  - and I assume
that Acme's setup achieves this -  is to the benefit of consumers, at
least not a detriment, allowing Acme to meet price competition better 
- although it MAY not have to reduce prices and can just earn a higher

That was rough and ready, but you asked  "ASAP".
If you are really interested in the US-Mexico situation, NAFTA is what
you need to read up on.

Good luck.

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