In the simplified offshoring model with two activities, a fall in the price of the low-skill intensive input will lead to:
A) gains to the home firm from offshoring.
B) losses to the home firm from offshoring.
C) neither gains nor losses to the home firm from offshoring.
D) neither gains nor losses to the foreign firm from offshoring.

Question

Quizplus · Accepted Answer

A fall in the price of the low-skill intensive input will make offshoring more profitable for the home firm, resulting in gains from offshoring. This is because the low-skill intensive activity will now be relatively cheaper to perform in the foreign country, leading to lower production costs and higher profits for the home firm.

In the Simplified Offshoring Model with Two Activities, a Fall