10.

Recently, computer programmers in developing countries such as India have begun doing work
formerly done in the United States. This shift has undoubtedly led to substantial pay cuts for some
programmers in the United States. Answer the following two questions: How is this possible when the
wages of skilled labor are rising in the United States as a whole? O A. In the short run, programmers with
specific skills that compete with Indian workers may face wage cuts, while, in the long run, programming
in general becomes more efficient, which can increase wages for others in the industry. O B. Indian firms
use government subsidies to unfairly compete with U.S. programmers in specific sectors of the industry.
O C. Indian firms are able to employ relatively unskilled workers at low wages to perform routine
programming tasks. O D. In the long run, programmers with specific skills that compete with Indian
workers may face wage cuts, while, in the short run, programming in general is more efficient, which can
increase wages for others in the industry. Which of the following arguments would trade economists
make against seeing these wage cuts as a reason to block outsourcing of computer programming? O A.
Allowing programming to be done more cheaply expands the production possibilities frontier of the US,
making the entire country better off on average. O B. t is possible for those who gain from outsourcing
to compensate those who lose. O C. The income distribution effects from outsourcing are not specific to
international trade. D. All of the above. O E. Only A and B above.

10. In terms of the pay cuts taking place in the United States for programmers, this is the result of the
factor of production (skilled labor) in India. There are more workers available in India and their labor is
cheaper their US counterparts, granting India a comparative advantage. This will lead to less demand for
US skilled laborers due to cheaper wages from India and the wage rate for US programmers will
therefore decline. In terms of trade economists arguing against using this as a reason to block labor
outsourcing to India, they would argue outsourcing would increase overall economic activity in the US.
Skilled laborers in the US would be able to focus on more important tasks and be more productive, while
Indian programmers would handle the more mundane tasks. Economic trade theory would therefore
suggest that free trade would boost overall efficiency in the US and although not all benefit directly from
trade, the country is better off as a whole. Blocking outsourcing would increase the cost of programming
work b/c the cheaper labor is no longer available, which would increase production costs and would be
felt by consumers.