Assignment 1101: An Average Worker In Brazil Can Produce An

Assignment 1101 An Average Worker In Brazil Can Produce An Ounce O

Analyze and compare the productivity, comparative advantages, and trade implications between Brazil and Peru regarding the production of soybeans and coffee based on given time per ounce data.

Evaluate Pacifica's production possibilities with given combinations of rice and coconuts, plotting the production possibilities curve and classifying specific production points.

Examine the labor productivity and production options of George and Kim in their cleaning and yard service business, determining each individual's production combination feasible and efficient within a 40-hour workweek, and analyze specialization based on comparative advantages.

Differentiate between efficiency and equity and analyze production possibilities, opportunity costs, and comparative advantages in a scenario involving Joe and Betty producing butter and cheese.

Calculate market equilibrium prices and quantities using demand-supply equations, analyze inefficiencies, and consider effects of shifts such as droughts, health reports, new technology, and consumer expectations on demand and supply in markets like ice cream, newspapers, and bagels.

Graph and interpret the impact of various events on the demand and supply of Maine lobsters and pizza, illustrating changes in equilibrium prices and quantities.

Sample Paper For Above instruction

Introduction

Trade theory plays a crucial role in understanding how countries benefit from specialization and exchange. The concepts of absolute and comparative advantage help explain why nations differ in productivity and how they can maximize gains from trade. This paper explores these principles through various scenarios involving Brazil and Peru, Pacifica's production possibilities, labor productivity of individuals, and market dynamics of goods like butter, cheese, ice cream, and lobsters.

Comparative and Absolute Advantage: The Brazil-Peru Case

The initial scenario involves two nations, Brazil and Peru, producing soybeans and coffee. Brazil produces an ounce of soybeans in 20 minutes and coffee in 60 minutes, whereas Peru takes 50 and 75 minutes respectively for the same outputs. Absolute advantage refers to the ability of a country to produce more of a good with the same resources. Brazil has the absolute advantage in both soybeans and coffee, especially in coffee since it takes less time (Mankiw, 2021).

However, comparative advantage considers relative efficiency, focusing on opportunity costs. Brazil's opportunity cost of producing one ounce of coffee is 1/3 of an ounce of soybeans (20 minutes vs. 60), whereas Peru's is 2/3 of an ounce (50 minutes vs. 75). Hence, Brazil has the comparative advantage in coffee, as it sacrifices less soybeans per unit of coffee produced than Peru (Krugman et al., 2018). Consequently, trade would benefit Peru by importing coffee, which Brazil can produce more efficiently relative to soybeans.

Production Possibilities and Efficiency in Pacifica

Pacifica’s production possibilities involve combinations of rice and coconuts, represented graphically by plotting points A through F. These points, when connected, form the production possibilities frontier (PPF), illustrating trade-offs and opportunity costs (Mankiw, 2021).

Line segments connecting A-F depict the maximum possible output of rice and coconuts given resources. Points on the curve, such as B and D, represent efficient combinations where no resources are wasted, whereas points inside the curve are inefficient, and those outside are infeasible with current resources.

Classifying combinations, such as 300 pounds of coconuts and 1200 bushels of rice or 450 pounds of coconuts and 1400 bushels of rice, involves assessing whether these points lie on, inside, or outside the PPF. For example, 300 pounds and 1200 bushels are feasible and likely efficient, whereas 725 pounds of coconuts with the same rice output may exceed the PPF, indicating infeasibility.

Labor Productivity and Comparative Advantage: George and Kim

George can rake one yard in one hour or clean one house in four hours, while Kim can rake one yard in two hours or clean one house in two hours. Filling in the tables reveals their productivity levels, with Kim being more efficient in both tasks.

Feasible and efficient combinations involve each working their total hours (40). George can rake 40 yards or clean 10 houses, while Kim can rake 20 yards or clean 20 houses. When specializing based on comparative advantage, Kim should focus on cleaning houses, as her opportunity cost is lower, and George should focus on raking yards.

This specialization increases overall productivity, demonstrating the benefits of comparative advantage. The production possibility frontiers (PPFs) for both are graphs illustrating the maximum output combinations possible given 40 hours of work, emphasizing the gains from trade and specialization.

Efficiency Versus Equity

Efficiency pertains to maximizing total output or welfare with given resources, minimizing waste, whereas equity involves the fair distribution of resources and income. These concepts can conflict; a distribution that maximizes efficiency may be perceived as unfair, and vice versa (Sen, 1999).

Understanding the balance between efficiency and equity is essential for designing effective policies that promote welfare without exacerbating inequality. For instance, redistributive policies may improve equity but could reduce incentives for productivity, illustrating the trade-offs involved.

Production, Opportunity Costs, and Comparative Advantage: Joe and Betty

Joe and Betty produce butter and cheese, with their respective production possibilities influencing their comparative advantages. Drawing their PPFs shows the max outputs. Joe’s opportunity cost of producing one pound of butter can be calculated from the PPF slope; similarly for Betty.

For example, if Joe sacrifices 2 pounds of cheese to produce 1 pound of butter, his opportunity cost is 2 pounds of cheese. Betty's opportunity cost might differ, influencing who has the comparative advantage in each good. Typically, the individual with the lower opportunity cost in producing a good should specialize in that good—highlighting the benefits of trade.

Market Equilibrium: Demand and Supply Analysis

Using the demand equation QD=200-2P and supply equation QS=2P, solving for equilibrium involves setting QD=QS, resulting in P=50 and Q=100 units. This equilibrium point balances willingness to buy and sell, maximizing total resources allocated efficiently (Mankiw, 2021).

The analysis of why a quantity of 80 units is inefficient involves recognizing that at this quantity, either excess demand or supply exists, leading to shortages or surpluses, which prevent the market from clearing.

The Impact of External Events on Market Equilibrium

Events such as droughts, health reports, technological innovations, and consumer expectations can shift demand and supply curves. For example, a drought reduces milk supply, decreasing cream production, thus lowering supply of chocolate ice cream and increasing prices (Casella & Myers, 2012). Conversely, positive health reports may increase demand, raising prices and quantities.

Technological advances reduce costs, shifting supply outward, thereby lowering prices and increasing quantities. Expectations of future price drops may decrease current demand, lowering prices and quantities today.

Graphing these shifts highlights the dynamic nature of markets and illustrates how various factors influence equilibrium points, emphasizing the importance of understanding elasticity and market responsiveness.

The Lobster and Pizza Markets: Price and Quantity Changes

Graphical analysis of lobster and pizza markets reveals that increases in supply, like a technological breakthrough in pizza production, lower prices while increasing quantity sold. Conversely, demand shocks, like health concerns over hamburgers, decrease demand, lowering prices and quantities. Changes in input prices, such as mozzarella cheese, similarly influence market equilibrium (Krugman et al., 2018).

For lobsters, an increase in supply due to better fishing technology shifts supply outward, reducing prices but increasing quantity. For pizza, rising input costs like cheese shift supply inward, raising prices and decreasing quantity demanded. These diagrams elucidate market responses to external changes.

Conclusion

Understanding the principles of comparative advantage, production possibilities, market equilibrium, and the impacts of external shocks provides insight into how markets function and how nations and individuals can maximize efficiency and welfare. Recognizing the distinctions between efficiency and equity is crucial for policymakers striving to foster growth while ensuring fair distribution. Through graphical and quantitative analysis, these principles illuminate the interconnectedness of productivity, trade, and market dynamics.

References

• Casella, A., & Myers, S. (2012). Microeconomics. Routledge.
• Krugman, P., Obstfeld, M., & Melitz, M. J. (2018). International Economics: Theory and Policy (11th ed.). Pearson.
• Mankiw, N. G. (2021). Principles of Economics (9th ed.). Cengage Learning.
• Sen, A. (1999). Development as Freedom. Oxford University Press.