Transnational companies Essay Example for Free

transnational companies EssayCountry H could concent appreciate completely on end product of level-headed X or of good Y, X = f(L + K) Y = g(L + K) but by doing so they would be using resources in return of one good that might be better used in production of the other. Therefore the production possibility frontier is concave. Note also that because plain H is well endowed with capital, it send away kindle more of capital-intensive good Y than agitate intensive good X, hence the bias in the submit towards production of Y. Because competitive firms wish to maximise profits, we digest prehend they depart produce at rough blockage along this PPF.The utility maximising liquidaters decide where. An important assumption made by economists in many trade models is that of community flatness curves (CIC). We can take an aggregate of all individual indifference curves to make a set of CIC. As long as trade is not allowed, production will take place at wherever the PPF is tan gent to the CIC that is furthest from the origin. This is our autarkic point. One final point to make is that at this point the charge dimension is equal to the slope of the PPF or the marginal rate of transformation (MRT).Mathematically, p = px/py = MRT =Y/? X (where px and py equal the respective prices of X and Y). indeed for given production functions and community preferences in autarky orbit H will produce and consume at Ah. Similarly with opposite component endowments but facing the same production functions and community preferences, rural argona F will produce and consume at Af. Allowing free trade means that producers face a new international price ratio as a result of the equalisation of prices. They now stool an incentive to produce more of what they can export because the can receive a higher price for it.The Heckscher-Ohlin theorem states that a country will export the good which intensively uses its relatively abundant factor. (Markusen et al 1995, p. 106). So in country H, the price of good Y will rise while that of good X falls, causing consumers to prefer good X. Producers of X however see higher profits can be made by producing good Y and because factors are intersectorally mobile, they can do so. The resulting surplus of Y can be exported at the international price level. Finally, consumption will occur where the international price ratio is tangent to the CIC furthest from the origin.Another consequence of free trade is the equalisation of factor returns. This is the consequence that labour unions in the certain world are concerned about. In our example, country H (we shall now assume to be the U. S. ) experiences an increase in the price of capital-intensive good Y (which might be aeroplanes) and a diminution in price of labour-intensive good X (for example textiles). The important consequence of different factor endowments in the two countries is that the resulting price ratios of goods X and Y are different.Therefore in country H, capital-intensive good Y is relatively cheap and labour-intensive good X is relatively expensive with the opposite organism true in country F. Lowering the barriers to trade gives consumers in H access to the markets in country F, where they can buy the labour intensive good X more cheaply. Similarly, consumers in country F can buy good Y cheaply if they import it from country H. Producers in each country are then forced to adjust production to suit the new patterns of demand In questioning globalisation, Hirst and Thompson (1995) investigate the flows of capital around the world and showThey suggest that negative consequences of this may include a reduction in the power of governments to control their own affairs. Although this is an important issue, worry from the perspective of an economist is the total pursuit of economic development with no consideration of health or ecological issues There are those who assert that globalisation is desirable and use economic theory to sho w that all countries concerned can benefit from an increase in trade.Alternatively there are those who question whether globalisation is really calamity and conclude that there are not as yet trans-national companies who Julius (1990) and Ohmae (1990) claim that numerous TNCs within the developed world go wherever investors see a return on their investments. So during the 1980s a smart TNC would initiate operations in the emerging markets of Korea, Taiwan and Hong Kong. When confidence was broken in the mid-nineties it would withdraw its assets from East Asia and head for safer shores to take advantage of the new economy in the U. S. This leads many to call up that by examining capital flows one can identify transnational companies.