Consider the two countries from Problem A.4 in Problem Set 1, Ausonia (home) and

Question

Consider the two countries from Problem A.4 in Problem Set 1, Ausonia (home) and Zambonia (foreign), which produce yogurt and sausages. As we already know from that problem, there is only one factor of production (labor). In order to produce a gallon of yogurt, Ausonian workers need 30 minutes, and Zambonian workers need 1 hour. In order to produce a sausage, Ausonian workers need 1 minute, and Zambonian workers need 3 minutes.Ausonia’s labor endowment is L = 1,500 hours, while Zambonia’s labor endowment is L*=3,000 hours.Markets are perfectly competitive.

A) Draw the consumption possibility frontiers for Ausonia and Zambonia (in two separate graphs) when there is international trade and the relative price of yogurt is 20 sausages (as in the question above). Are there gains from trade for Ausonia? Why or why not? And for Zambonia? Why or why not?

B) Now assume that the relative demand for yogurt increases, and crosses the world relative supply at a relative price equal to 25 sausages. Draw the new relative demand on a new graph, showing where it crosses the relative supply. Now, draw the new consumption possibility frontiers for Zambonia and Ausonia (in two separate graphs). How do your answers to the previous question change? That is, at this different relative price, are there gains from trade for Ausonia? Why or why not? And for Zambonia? Why or why not? Explain.

C) Write the production functions for yogurt and sausages in Ausonia and Zambonia. Are these production functions different or identical across countries? Are these production functions characterized by constant returns to scale or increasing returns to scale? Is any of these countries labor abundant?

Explanation / Answer

1. Is what Frank did ethical? By whose ethics—those of Latino or the United States?

Before deciding on the ethicality , one should focus y whose ethics he or she is deciding upon. The acts of Fran k are unethical and illegal in USA but as these activities were performed in Latino where using some added tools to get things done is a normal course of action, the activities of Frank can be considered just right.

2. Are Frank’s two different payments legal under the Foreign Corrupt Practices Act as amended by the Omnibus Trade and Competitiveness Act of 1988?

The first payment made by Frank to the dockworkers can be considered as legal under both acts as it was just a small bribe for making the things rolling. But under the same act, his second payment to Jefe who is a government official is illegal despite being a smaller bribe, it will be illegal under both the acts to bribe the government officials.

3. Identify the types of payments made in the case; that is, are they lubrication, extortion, or subornation?

There are the signs of lubrication in both the payments which were made by Frank as he was using all these tools for making the things to happen fast. Extortion is where you make a threat to get things moving and subomation is where you force someone to do an unlawful act. However if we were looking at the second payment from the jefe’s point of view then he was kind of forcing Frank to commit an illegal act, so it could be classified as subomation.

4. Frank seemed to imply that there is a similarity between what he was doing and what happens in the United States. Is there any difference? Explain.

There is a difference in the two acts of Frank i,e, when he was performing some activities in Latino and when he was trying to sell in USA. but both of these are the examples of bribes. . In the United States people bribe each other to get a sale, re-election etc. by taking someone out to a fancy dinner, or provide gifts; however it is illegal to hand someone money under the table. In Latino they are just more open about it. They will flat out say a bribe is a bribe.

5. Are there any legal differences between the money paid to the dockworkers and the money paid the jefe (government official)? Any ethical differences?

The money which is being given to jefe is not legal as he is a government officer but there is no legal issue in case of the money paid to dockworkers in Latino. It is not ethically supported to receive the money by jefe from Frank to purchase something as he should not take bribe being the government official. But paying some money to dockworkers is not illegal and unethical as they are underpaid.

6. Frank’s attitude seems to imply that a foreigner must comply with all local customs, but some would say that one of the contributions made by U.S. firms is to change local ways of doing business. Who is right?

One should try to ft in the local culture and follow the local customs but while conducting business, one should not forget his or her business core values and beliefs. At times, it can force someone not to follow the local customs as these can be against the core values.

7. Should Frank’s behavior have been any different had this not been a government contract?

  Frank could have been more motivated to bribe if the has not been a government contract but at the same time, it could have been easier for not paying any bribe.

8. If Frank shouldn’t have paid the bribe, what should he have done, and what might have been the consequences?

Frank has to decide whether the case is matching with the core value of his business or not. If not then he would have had to try to pretend to fix this imaginary problem and risk losing the sale because of it.

9. What are the company interests in this problem?

Being the employee of the firm, Frank is representing the firm, thus firm will be sensitive about Frank's actions, whether the firm is being represented well or not. But the bottom line is to sale more goods so it depends that whether there is a match between the core values of the firm and Frank's actions.

10. Explain how this may be a good example of the SRC (self reference criterion) at work.

Frank, instead or looking to the company for a reference of whether or not this was ok to do, he look to himself and his own guiding principles to make the decision.

11. Do you think Bill will make the grade in Latino? Why or why not? What will it take?

Bill will not make it in Latino if he is unwilling to comply with some of the local customs doing business there requires you to make. I think it is alright if he doesn’t want to do anything illegal, but he will have to changes his views from what is illegal in the United States and what is illegal in Latino. However Bill is a company man, so he will be making more decisions based off of the company’s core values than Frank was, which will benefit the company in the long run.

12. How can an overseas manager be prepared to face this problem?

It is important to know what is illegal and what is not in the new country. However it is also important to know whether or not those laws are actually followed by local custom. It is also important to have a discussion with the company to define what actions are all right and which are not. Know the local customs and culture!

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