If you could have the answer to any "economic" question, what would that question be?
Sometimes I am not sure economists are asking the right questions, or we even know what it is we are trying to answer.
Moving my writing to substack
3 years ago
Testing the comment feature...
ReplyDeleteThis is more of a real question than a testing one, but its been bugging me for years. I understand the principles behind outsourcing but I have 2 questikons, which are I know are wrong but I can't work out why.
ReplyDeleteHere's a example: a company in london employs 1 person making widgets and pays them £10 000, if they outsource to bangalore, ignoring transaction costs they can pay £1000 in wages and either have £9000 more profit or cut prices for all products by the value of £9000. If they outsource to bradford, they can cut wages to say £7000 and have £3000 for increased profits for shareholders or to cut prices.
Question 1: doesn't all this assume ceteris paribus, demand remains constant, but haven't we just cut wages by either £9000 (bangalore or £3000 if bradford), won't spending and by extension demand fall, meaning demand will fall by extension.
Question 2: how does outsourcing / outshoring make everyone better off, aren't we just transferring the money that would have been spent on wages to either shareholders or customers? How does it make demand rise by a greater amount than if the original person was paid £10 000?
Apologies if this isn't the place to post this question