6.1 Practice Essay

Consider these scenarios to see how prices for imported goods would be affected if foreign workers were paid the U.S. federal minimum wage of $5.15 in 2006. Be sure to show your calculations.
1. A team of three laborers in Mongolia makes rugs by hand for export to the United States. The team works 14 hours a day, six days a week, 50 weeks a year, and is able to make 12 rugs a year. Each laborer is paid a wage that is equivalent to $1.10 per day. The rugs sell for $2,000 each in the United States.
a. What are the total labor costs involved in making these 12 rugs? (4 points)

b. How much profit does this company make every year? (4 points)

c. If a team of three workers in the United States, each making the federal minimum wage, produced these 12 rugs, what would the total labor costs be? Don't forget that these workers would be working overtime. (4 points)

2. A team of five laborers in Indonesia working in a garment factory divides the task of making men's dress shirts for export to the United States. Each laborer works 10 hours a day, six days a week, and is paid the Indonesian minimum wage of $2.50 per day. In one week, the team can make 500 shirts. The shirts sell for $40 each in the United States.
a. What are the labor costs for each shirt? (4 points)

b. How much would it cost to pay five workers working at the U.S. federal minimum wage to do the same job in the same amount of time? (4 points)

c. What would the labor costs be for each shirt made in the United States? (4 points)

3. What would the economic implications for both exporting countries and importing countries be if the world were not so interdependent? Explain how a world with less interdependence would affect your life. (6