Asian Competition Has Hand in Glove Maker's Closures
Subject Comparative statics, Shut-down Conditions
Topic Perfect competition
Key Words Sales, plant, work force, labor costs
News Story

Historically, gloves were worn by few people other than boxers and debutantes. Nowadays, gloves, particularly latex or synthetic gloves, are commonly seen in the work place due to the fear of, for example, anthrax, E. coli, and AIDS. Some are cheap, only 2 cents a pair, and are used by people such as home health care workers. Others are expensive, costing $2 a pair: these are used by surgeons and computer-chip manufacturers.

Sales of disposable gloves have skyrocketed. In 1986, only 1 billion were sold world-wide. In 2001, in the U.S. alone, 27 billion were sold. During the anthrax scare, the U.S. Postal Service ordered 90 million pairs of synthetic gloves.

However, only one latex glove maker remains in the U.S., Tillotson Healthcare, of Bedford, N.H. It has closed two of its three U.S. plants in the last six years and has thinned its work force from 1,300 to 300 workers. The problem is that labor costs in the U.S. are high compared to those in Asia. The CEO is unsure whether the surviving plant will stay open.

(Updated May 6, 2002)

1. Assume that the world market for disposable latex gloves is perfectly competitive. Draw a pair of diagrams, one showing the world demand and supply for latex gloves, and the other showing the equilibrium for the U.S. plant that produces latex gloves. In each diagram, mark the equilibrium price and output, assuming that the plant is breaking even.
a) Show the effect of lower wage costs in the world market. Explain what you have drawn.
b) What are the short run implications for the U.S. plant? Illustrate.
c) Under what conditions would the plant shut down? Draw an average variable cost curve to illustrate a situation in which shutting down in the short run would be warranted.
2. The usage of disposable gloves is increasing.
a) What is the effect on the world market, other things being equal? Illustrate on your diagram.
b) What are the short run implications for the U.S. plant? Illustrate.
c) What would be necessary for the plant to stay open in the short run? In the long run?
Source Bruce Horovitz, "Anxiety spreads love of gloves", USA Today, March 1, 2002.

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