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International Economics - Essay Example

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Name: Instructor: Course: Date: International Economics Question 1 1The carpet production process in India is largely reliant on labor rather than capital. Resource endowments in India’s carpet production center primarily around social capital rather than technology and financial capital…
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International Economics

Download file to see previous pages... Social and cultural characteristics also impact the production techniques since the stock of trust among Indians facilitates the maintenance of socially held knowledge that, in turn, allows the social organization of the economic activity of carpet making. In India, values, ideas, human relationships and knowledge of carpet making are transmitted from one generation to another as part of the robust Indian culture. Conversely, the carpet production process in the US is characterized by mechanization of most processes. 2This allows for large-scale production as a single carpet producer uses massive amounts of fiber each day. Resource endowment, in the US, includes massive amounts of financial and intellectual capital, high entrepreneurship and robust technologies. Additionally, income levels are relatively large, enabling entrepreneurship and the establishment of huge companies that churn out massive quantities of carpets throughout the year. Essentially, resource endowment, in the US, including land, capital, labor and entrepreneurship, is quite prosperous. Social and cultural characteristics of the US that impact carpet production include an appreciation for formal training and education, which results in highly skilled and specialized human capital essential for the production process. Question 2 Carpet production is one of India’s oldest industries, dating back to the Mughal Dynasty. However, carpet production centers on the individualistic skills and knowledge of a weaver rather than collective appreciation of carpet making acquired through formal education and training. Due to immediacy to furnishing product, several carpet manufacturing centers have developed across the country. Carpets produced in India are mostly exported since the Indian market for carpets is quite small as a result of the low purchasing capacity of local players. Presently, India’s carpet export is worth Rs.2600 crores while the local market size is approximately Rs.200 crores. 3The industry has high growth potential as exports increased by 42.23% between 2004 and 2007. 4However, the industry is marred by challenges such as poor market channels, resulting in ignorance within the Indian market. 5On the other hand, the carpet industry in the US is highly developed. The industry shipped 1.969 billion square yards of carpet, in 2003; this was worth approximately $12 billion. Carpet shipments increased to 2.3 billion yards in 2004, demonstrating the massive potential inherent in the US carpet production industry. Presently, the US meets at least 45% of the world’s carpet needs. 6The US carpet industry is characterized by innovations and technological advances that allow for large-scale production of highly-priced goods. Technological progress is one of the primary reasons behind massive growth in the US carpet industry. The US carpet industry is highly organized, allowing for sufficient knowledge in the domestic market. 7 As a consequence, the US effectively meets at least 90% of its domestic carpet needs. Question 3 Latent demand for carpets in the USA pushes the country to become a primary importer of carpet despite being an efficient carpet producer. This is because carpet production, in the US, has been unable to offer complete satisfaction to all domestic needs and wants, resulting in a gap between what is available and desirable. The local US market has a high desirability for hand woven, Indian carpets, which are considered stylish and sophisticated. Conversely, ...Download file to see next pagesRead More
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