Economists Do It With Models

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September 9th, 2016 · 1 Comment
Econ 101 · Tumblr

http://economistsdoitwithmodels.tumblr.com/post/150177476175/introduction-to-price-supports

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1 response so far ↓

  • 1 Jerry Friedrich // Oct 15, 2016 at 10:42 pm

    Let me provide a simple example that may provide a point of thought. In 2015 Carrier was producung air conditioners in Indianapolis. Let’s say for numbers sake 30,000 units which provided salaries of 1500 employees. In 2016 Carrier announced that the 1500 people were going to be laid off (no income) and the jobs would go to Mexico to make the 30,000 units. If those units produced in Mexico are now imported into the US, the value would be substracted from GDP and may allow more people to purchase (assume lower price) the air conditioner (greater standard of living) to the extent of the loss of wages for the people who lost their jobs in Indianapolis. But, the real effect is a reduction in US production ( reduction of GDP) + a second reduction due to the imports reducing GDP (X-IM) also. Thus Income went down by the wages but GDP was reduced double ( reduction of production plus imports reducing it again), thus income actually went up. Where did I go wrong?

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