Thursday, June 28, 2007

An iPod's global value

Today’s Economic Scene column in the New York Times written by Berkeley Economics Professor, Hal Varian, addresses an intriguing question: Who makes the Apple iPod? My i-Pod has labeling that says that the product is “Designed in California by Apple.” The column describes the results of a study by three researchers at the University of California at Irvine that examined the parts that go into the production of an i-Pod. This case study suggests that it is impossible to understand the interconnections in an open global economy by looking at the standard trade statistics which focus on imports and exports.

Many American are legitimately worried about outsourcing or offshoring, which is the relocation of production once done in the U.S. to foreign countries. They are concerned about the outsourcing that occurs because many countries have a comparative advantage in labor costs. Varian points out that “(E)ven though Chinese workers contribute only about 1 percent of the value of the iPod, the export of a finished iPod to the United States directly contributes about $150 to our bilateral trade deficit with the Chinese.” Read the complete article by clicking here. Looking at a case study of the global production of a specific good or service and drawing economic implications might make an interesting and valuable Discussion Board topic.

Summer Session Extra Credit: How much does Apple get for each of the $299 video iPods that it sells? How much of the retail value is captured by “American” companies and workers. If you are the first Summer Session student to send me an e-mail at with the answer, you will be rewarded with two extra credit Discussion Board points. Only one blog extra credit question per student can be answered in any given week for Discussion Board extra credit.

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