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ECON 1011 Lecture Notes - Lecture 6: Absolute Advantage

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School
GWU
Department
Economics
Course
ECON 1011
Professor
Suranovic Steve

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ECON 1011 Full Course Notes
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ECON 1011 Full Course Notes
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Document Summary

In order for smith to have possession of the goods he produces, he has to harvest them endowed with 1 hour of work. If he only works to harvest oranges, he can get 10 oranges in an hour: 3 apples in 1 hour instead. O = # oranges / hour of labor = 10 /1 = 10 oranges /hr. A = # apples / hour of labor = 3 /1 = 3 apples /hr. Quantity of oranges produced by smith (qs. O * [# of hours of labor] = 10 oranges/hour * 1 hour = 10 oranges. Quantity of apples produced by smith (qs. A * [# of hours of labor] = 3 apples/hour. Unit labor requirement for oranges = = reciprocal of the productivity 1/10 hrs/oranges. Labor constraint (1) o: 1/10 1/3, can be (ax + by = c) A person (a) has an absolute advantage in the production of a good (x) [relative to another person.

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Related Questions

QUESTION 31

Suppose that twenty-five years ago a country had nominal GDP of $1,800, a GDP deflator of 150, and a population of 100. Today it has nominal GDP of $2,800, a GDP deflator of 270, and population of 180. What happened to the real GDP per person?

It more than doubled

It increased, but it less than doubled

It was unchanged

It decreased

1 points

QUESTION 32

During a presidential campaign, the incumbent argues that he should be reelected because nominal GDP grew by 12 percent during his 4-year term in office. You know that population grew by 4 percent over the period and that the GDP deflator increased by 6 percent during the past 4 years. You should conclude that real GDP per person

grew by 2%

grew by 6%

grew by 8%

grew by 12%

1 points

QUESTION 33

Suppose today’s CPI is 134.85, and suppose one must spend $986 today to purchase the same basket of goods and services that could be bought for $680 in 1989. Then the CPI in 1989 was

24.27

60.68

93.00

195.53

1 points

QUESTION 34

If your firm’s production function has a decreasing returns to scale and you increase all your inputs by 60%, then your firm's output will

not change

increase, but by less than 60%

increase by 60%

increase by more than 60%

QUESTION 36

Suppose country's nominal GDP tripled, population grew by 40%, and prices doubles over the last 25 year. What happened to nominal GDP per person?

increased by 114%

increased by 93%

increased by 87%

decreased by 69%

1 points

QUESTION 37

A barber shop produces 288 haircuts a day. Each barber in the shop works 8 hours per day and produces the same number of haircuts per hour. If the shop’s productivity is 3 haircuts per hour of labor, then how many barbers does the shop employ?

8

12

16

None of the above is correct

1 points

QUESTION 38

If the nominal interest rate is 11% and the rate of inflation is 6%, then the real interest rate is

-5%

1.67%

5%

11%

1 points

QUESTION 39

Last year real GDP in Greatland was 651 billion and the population was 2.4 million. The year before, real GDP was 460 billion and the population was 1.9 million. What was the growth rate of real GDP per person during the year?

12 percent

10 percent

4 percent

2 percent

1 points

QUESTION 40

If real GDP increases by 40% and the GDP deflator decreases by 10%, then nominal GDP increases by

40%

30%

26%

-10%

PLEASE ANSWER ALL PARTS OF ALL QUESTIONS THOUROUGHLY (WILL GIVE GOOD RATING-THANKS)

A. Consider an entrepreneur who has decided to follow through on a business venture. He has quit his job where he was employed as a Medical Assistant earning $2,500 a month, and has decided to run this new business venture alone as the sole proprietor. He approaches a bank with his business idea and obtains a loan for the startup and purchases the equipment and machinery that he would need for the business including the purchase of a web address and design for his business, he also takes out a 2 year lease on a building and adjoining property, with paid utilities at an excellent location and contracts with suppliers to provide him with raw materials on a six month basis at discounted bulk purchase rates. His total fixed costs on a monthly basis for this venture, which includes his forgone earnings from his previous job, are $7,500.

He now needs to hire workers to operate the machines, handle orders etc. and he needs at least 5 workers to begin production. Having taking ECON 2020 while in college, he computes the total product function for his business, on a monthly basis, given the quantity of other resources he has, in the short run as follows:

Quantity of Labor (Number of workers)

Total Product (Output)

5

200

10

450

15

800

20

1100

25

1300

30

1400

1. First, assume no other information on the profitability of this venture, what is the implied 'profit' expected by the entrepreneur each month? Explain

2. Obtain the marginal physical product of this business, graph the function and provide an intuitive explanation for the shape of the function.

3. Now suppose each worker hired is paid $10/hr in wages and works 150 hours each month. Obtain the monthly total variable, total fixed and total cost functions for this business if it produces at the various output levels in the table above (i.e. fill out the table below, and show all necessary work below)

Output (Q)

Total Fixed Cost

Total Variable Cost

Total Cost

200

      

450

      

800

      

1100

      

1300

      

1400

      

4. The entrepreneur knows that his business is producing in an environment of perfect competition and as a result the market determined price after his entry into the business is $37.50 for each unit of the product that he sells. Determine the firm's monthly profit maximizing (or loss minimizing) output level , using the profit maximizing rule

5. From (4), is this firm making any excess (economic) profits in the short run? Explain. Compute the firm's monthly profits (or losses) at the profit maximizing output level

6. What should we expect to happen in the long run in this industry as a result of the correct answers given in part (5)? Explain.

Read the articles and consider two people, Mon and Shaman, that can produce 2 goods, shrimp and mobile apps.

If Mon and Shaman devoted themselves to shrimp and mobile app production, the chart below shows how much each person can produce per hour.

Complete the first table by showing how many shrimp and mobile apps each person would produce if they did not specialize.

Hours worked per year

 Total amount produced if each person devotes all their working hours per year to each good.

Shrimp per hour

Mobile Apps per hour

Total Shrimp

Total Mobile Apps

Mon

3500

50

1

Shaman

2000

10

5

In a world hungry for cheap shrimp, migrants labor overtime in Thai sheds

By Jason Motlagh, Published: September 19, 2012

Jason Motlagh/For The Washington Post - Burmese migrant workers peel shrimp at a processing factory in Samut Sakhon province in Thailand. High standards allow the factory to export its seafood to the United States.

MAHACHAI, Thailand — At an age when she should have been in a classroom, Thazin Mon discovered her knack for peeling shrimp. To help support her Burmese migrant family, the 14-year-old pulled 16-hour shifts, seven days a week, for less than $3 a day. “I am uneducated, so I work. I have to work bravely,” she says.

Although she was the best peeler in the factory, speed was never enough. Mon was beaten if she slowed down, she said, and when she asked for a day off to rest hands swollen with infection, her boss kicked her and threatened rape.

Thanks to a bottomless appetite for cheap shrimp in the West, Burmese migrants such as Mon are the backbone of a Thai shrimp industry that is the world’s third largest. The United States is Thailand’s top customer, accounting for a third of the country’s annual shrimp exports.

Rights groups say that overseas demand for shrimp products in greater volume has fueled a culture of exploitation in the Thai industry. They insist that the failure of foreign companies to sufficiently verify the origin of the shrimp they import allows abuses to persist.

“If you look at the cost of shrimp overseas, it’s very, very cheap, and that comes from the exploitation inherent in the shrimp industry,” says Andy Hall, an expert on migration at Mahidol University who tracks Burmese labor in the Thai seafood industry.

Brisk business with major U.S. retailers such as Wal-Mart, Costco, Sam’s Club and Red Lobster pumps more than $1 billion in revenue each year into the Thai economy, the second largest in Southeast Asia. As Thai living standards have risen, a shortage of unskilled labor has attracted tens of thousands of Burmese migrants looking to escape the poverty and job scarcity that has gripped their homeland for decades.

Most head to Samut Sakhon province, the heart of the processing industry just south of the capital, Bangkok, where modern facilities line the highway alongside fast-food chains and car dealerships. The more prominent factories are the size of football fields, with neon signage and billboards that feature smiling children. But there’s a darker side behind the scenes, activists say.

Of an estimated 400,000 migrants at work in the province, only about 70,000 are legally registered. The rest are employed illegally in anonymous peeling sheds that supply the larger companies that must fill massive orders from abroad. At this lower end of the supply chain, according to migrant activists, crooked brokers and employers trap scores of Burmese in abusive conditions tantamount to slavery, particularly in the shrimp industry.

“The small factory owners know that most of their workers are undocumented, so they can control the workforce however they want — such as locking workers in until they finish their work,” says Sompong Sakaew, a labor activist based in Mahachai, the provincial capital. “There are also teenagers between 12 and 17 years old in the workforce.”

Sold into waking nightmare

Problems for Burmese migrants typically start as soon as they link up with brokers who promise steady work and a decent salary, only to sell them into a nearly inescapable cycle of debt bondage.

Min Oo, 28, a Burmese farmer who lost his home in a flood, said he paid a broker the equivalent of $500 to smuggle him across the border to Samut Sakhon, with the guarantee of a minimum-wage (about $10 a day) factory job. Instead, he said, the broker sold him into a waking nightmare, with 18-hour workdays in a shrimp-processing factory and net earnings of no more than $20 a week, leaving almost nothing to send home.

In some cases, migrant workers and rights groups allege, police officials or their relatives hold an ownership stake in unregistered peeling sheds. More commonly, the critics say, the authorities or those they protect shake down undocumented workers for bribes to supplement their incomes, knowing that the migrants would rather pay up on the spot than be deported to Burma.

Despite occasional police action and robust anti-trafficking laws, Sakaew, the labor activist, estimates that fully a quarter of the 1,200 to 1,300 factories in Samut Sakhon province are unregistered and, therefore, ripe for abuse. With so much profit-induced apathy on the Thai side, activists say reform pressure must come from Western companies whose trade partnerships drive the shrimp industry.

Codes of conduct

It is difficult to establish precise links between the larger Thai companies that process shrimp of dubious origin and the Western companies whose consumers increasingly demand ethical sourcing.

To do business overseas, Thai companies must qualify for membership in the Thai Frozen Foods Association, which adheres to globally recognized codes of conduct and carries out unscheduled inspections. Spokesman Arthon Piboonthanapatana asserts that anyone found guilty of labor -abuses would be expelled. In more than three years of inspections, he said, this has never happened.

“If the shrimp is from TFFA members, I can 100 percent guarantee” that it is produced without labor exploitation, he said.

But critics say that until the Thai shrimp industry requires larger factories to provide records of lower-level suppliers and follows through with random inspections, the shrimp it exports will remain tainted by human trafficking and labor abuses.

For the past three years, the State Department has given Thailand a poor grade on human trafficking, citing it among countries that do not fully comply with the minimum standards for efforts to combat the problem.

After the release of the department’s report in 2012, Thai Foreign Minister Surapong Tovichakchaikul said his country would improve its performance by strengthening cooperation among agencies tasked with fighting human trafficking.

Motlagh reported with a grant from the Pulitzer Center on Crisis Reporting.

More world news coverage: - Turmoil in Egypt stalls talks on U.S. aid - Suicide blast kills 12 near Afghan capital’s international airport - U.S. troops to cut missions with Afghan forces - Read more headlines from around the world.

Google reportedly acquiring Waze app for $1.3 billion

News ends months of rumors on deals with Apple, Facebook, or Google, according to Globes; Waze source refuses to comment

By David Shamah June 9, 2013, 7:20 pm

Waze co-founder Uri Levine at a Jerusalem conference in May (photo credit: Flash90)

After dating at least three of the biggest tech companies in the world, it appeared Sunday night that Waze was finally getting the ring — one worth $1.3 billion, according to a report in the Israeli business newspaper Globes.

That’s the sum Google has reportedly agreed to pay for Waze, the Ra’anana-based crowdsourced driving and navigation app with 50 million users around the world. The figure is $300 million higher than Facebook reportedly offered to pay for the firm earlier this year.

A company source contacted by The Times of Israel had no comment on whether talks with Google (or any other party) were on or off. “We don’t comment on rumors and speculation in general,” the source said.

The purchase, reported by Globes citing an anonymous source, would be the biggest buyout yet for an Israeli consumer firm, far outstripping Face.com’s $60-million sale to Facebook last year. Indeed, it is believed that it would be the biggest sum paid for any app, ever.

In May, it was rumored that Facebook had offered nearly $1 billion for Waze, but negotiations broke down several weeks later, apparently over Facebook’s insistence that Waze move its R&D from Israel to one of Facebook’s existing facilities, in the US or Britain. Several weeks later, it was reported that Google was interested in Waze, and that the search giant had offered as much as $1 billion for the company as well.

Previous rumors — earlier this year — had Apple as a prospective Waze buyer, with an offer of $400 million for the Israeli company.

A Google-Waze deal would likely not get snagged over location; Google already has several large R&D facilities in Israel, and employs hundreds of engineers here. Integrating the already existing Waze group into the Google infrastructure would be much simpler than getting Waze integrated with Facebook, local social media expert Yotam Tavor told The Times of Israel.

However, it appears that location wasn’t the only issue. As recently as several weeks ago — amid the rumors that Google was poised to make an offer for Waze — company insiders were quoted in news reports as saying that members of the Waze board of directors believed that they would be selling themselves short if they “settled” for $1 billion — and that they could raise much more with an IPO. How much Waze would fetch in an IPO isn’t clear, but if the latest report is true, Google apparently agrees with the Waze officials opposed to a sale.

Google already has its own mapping and driving app, and competes with Waze, but the latter dominates in most of the markets where Google’s Navigator app is used. As such, Google and Waze are competing in the same space, but most users agree that the Waze app is much more elegant and user-friendly than the Google one.

In addition, Waze has built an active and loyal social network, which is highly engaged with the app, as well as a built-in mobile ad platform. In its latest version, it supplies Google Maps-like recommendations — making it a perfect match for Google, Tavor said.

,

Information

Remove flag

Information text

The Outcome Without Trade

The Outcome With Trade

The Gains From Trade

What they Produce and Consume if they do not specialize according to comparative advantage.

What They Produce if they fully specialize in one good.

What They Trade

What They Consume

The Increase in Consumption

Mon

1.)

Point A

5.)

9.)

10.)

13.)

Point A*

17.)

A to A*

2.)

6.)

14.)

18.)

Shaman

3.)

Point B

7.)

11.)

12.)

15.)

Point B*

19.)

B to B*

4.)

8.)

16.)

20.)

Suppose Mon and Shaman do not specialize according to comparative advantage and exchange but instead choose to be self-sufficient.

Further, they devote half of their hours in each year to each good and they consume everything they produce domestically.

After specialization according to comparative advantage, they exchange 5,000 apps for 75,000 shrimp.

Compute values for the numbered cells.

Question 29

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What is the opportunity cost of producing shrimp for Mon?

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What is the opportunity cost of producing shrimp for Shaman?

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Question 31

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What is the opportunity cost of producing Mobile Apps for Mon?

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Question 32

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What is the opportunity cost of producing Mobile Apps for Shaman?

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Question 33

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1.) Before specialization, how much shrimp will Mon produce?

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2.) Before specialization, how many mobile apps will Mon produce?

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3.) Before specialization, how much shrimp will Shaman produce?

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4.) Before specialization, how many mobile apps will Shaman produce?

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5.) If they specialize according to comparative advantage, how much shrimp will Mon produce?

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Question 38

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6.) If they specialize according to comparative advantage, how many mobile apps will Mon produce?

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Question 39

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7.) If they specialize according to comparative advantage, how much shrimp will Shaman produce?

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8.) If they specialize according to comparative advantage, how many mobile apps will Shaman produce?

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Question 41

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9.) After specialization according to comparative advantage, they exchange 5,000 apps for 75,000 shrimp, i.e. each country sells some of the good in which they have a comparative advantage for the good in which they have a comparative disadvantage.

How much shrimp will Mon trade?

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10.) How many mobile apps will Mon trade?

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11.) How much shrimp will Shaman trade?

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12.) How many mobile apps will Shaman trade?

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13.) After trade, how much shrimp will Mon consume?

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14.) After trade, how many mobile apps will Mon consume?

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15.) After trade, how much shrimp will Shaman consume?

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16.) After trade, how many mobile apps will Shaman consume?

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17.) After trade, Mon’s shrimp consumption increased by how much?

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18.) After trade, Mon’s mobile app consumption increased by how much?

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19.) After trade, Shaman’s shrimp consumption increased by how much?

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20.) After trade, Shaman’s mobile consumption increased by how much?

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Question 53

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What is the total amount of shrimp produced if Mon fully specializes in shrimp production?

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Question 54

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What is the total amount of shrimp produced if Shaman fully specializes in shrimp production?

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Question 55

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How many mobile apps will Mon produce if she fully specializes in producing mobile apps?

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Question 56

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How many mobile apps will Shaman produce if he fully specializes in producing mobile apps?

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