The logic of service outsourcing - The Ricardian model It is sometimes argued in editorials or TV commentaries that the modern wave of outsourcing, especially outsourcing of services to Pakistan, defies the logic of the Ricardian model. Let’s examine if this is actually the case. The following table presents information on labor productivity in computer component production and call center services in Canada and Pakistan. Assume that Canada has an absolute advantage in both. To complete the following table, choose the number of calls that would be most plausible and consistent with the reality of outsourcing services to Pakistan, and indicate the good in which each country has a comparative advantage. Production per Employee Production per Employee Computer Components Call Center Services Country (Units per hour) (Phone calls per hour) Comparative Advantage Canada 18 9 _ (Call Center Services / Computer Components Production) Pakistan 3 (18 / 7.5 / 3 / 1) _ (Call Center Services / Computer Components Production) Does the observed pattern of outsourcing from Canada to Pakistan, where Pakistan exports ____(Call Center Services / Computer Components / Both / Neither), support the logic of the Ricardian model? (Yes or No)

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Problem 1QTC

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The logic of service outsourcing - The Ricardian model

It is sometimes argued in editorials or TV commentaries that the modern wave of outsourcing, especially outsourcing of services to Pakistan, defies the logic of the Ricardian model. Let’s examine if this is actually the case.

The following table presents information on labor productivity in computer component production and call center services in Canada and Pakistan. Assume that Canada has an absolute advantage in both.

To complete the following table, choose the number of calls that would be most plausible and consistent with the reality of outsourcing services to Pakistan, and indicate the good in which each country has a comparative advantage.

	Production per Employee	Production per Employee
	Computer Components	Call Center Services
Country	(Units per hour)	(Phone calls per hour)	Comparative Advantage
Canada	18	9	_____ (Call Center Services / Computer Components Production)
Pakistan	3	______(18 / 7.5 / 3 / 1)	_____ (Call Center Services / Computer Components Production)

Does the observed pattern of outsourcing from Canada to Pakistan, where Pakistan exports ______(Call Center Services / Computer Components / Both / Neither), support the logic of the Ricardian model? (Yes or No)

Definition Video Definition Ability of a country to produce more output with a given level of input or to produce the same level of output with a lower level of input as compared to the other countries. For example, if Country A produces 200 units with the help of 10 units of labor, and Country B produces 300 units with 10 units of labor, Country A has an absolute advantage in the production of the good. Video

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