How comparative advantage works in modern economy

Question

Assignment:

This learning portfolio consists of a series of short writing assignments. You will be required to complete and revise these assignments throughout the semester, and to compile and submit your completed portfolio by the due date.

General Directions:

• Please complete ALL of the individual assignments listed below, and compile them into one document to submit by the due date. Note that some chapters do not have a corresponding assignment.
• Please submit your compiled and revised learning portfolio using one of the following programs/formats: Microsoft Word/.doc, Open Office/.odt, or Adobe Acrobat/.pdf. Other formats are not acceptable since I cannot read them.
• Follow the directions for each individual assignment closely. This sounds simple, but most of the points people lose are due to failure to follow the directions. To help with this, many assignments are broken down by components, for example A, B, C, D, etc. Please respond to these assignments by specifically addressing each component with its own paragraph.
• Use your best writing skills. This assignment should reflect college-level writing ability and will be graded significantly lower if it does not. High school-level work uses proper grammar, punctuation, spelling, sentence structure, and reasonable paragraph lengths, so these components are absolutely mandatory in the learning portfolio.
• There are no length requirements for the individual assignments, so please do not try to lengthen your submission by including fluff, by being redundant, or using formatting tricks. But at the same time, do not provide superficial responses. Take your time to respond to the assignments in a complete, meaningful way, and whatever length it ends up being is the "right" length.

Individual Assignments:

Part 1:

Discusses the gains from trade that can result when individuals, firms, or countries specialize in producing goods for which they have the comparative advantage, and trade those goods with others.

Gains from specialization and exchange can be seen in many situations. For example, most people that we pay to do things for us (e.g. grow our food, cut our hair, tutor us, etc.) perform the task for a lower opportunity cost than we would bear if we were to do it ourselves. This is where the gain from trade that benefits both parties comes from, and is why it is rational for you to pay for the service.

To show that you understand how comparative advantage works in the modern economy, please discuss a good you recently purchased and address the following prompts:

1. What is the item, and how much did you pay for it?
2. What is a reasonable estimate of how long it would take you to make the item if you hadn't been able to buy it? You need to come up with a number of hours or days or years, or whatever time measurement you want, for how long it would take you. Don't try to avoid this. If you can't figure it out, pick another good.
3. Who worked to get the money to pay for the item, and how long did they have to work to get the money? If your money came from the government, see the how the government gets money page.
4. Based on your answers to 2 and 3 above, was it rational to buy the good? Explain. Make sure you compare the time it would take you to make the good (mentioned in part 2) and the amount of time that had to be worked to get the money (mentioned in part 3). It is only rational to buy something if you give up less resources working to earn money to pay, than you would have if you made the good yourself. If it turned out to be irrational, why did you buy it?

If you want to see an example, check out the "great work" linked above. But do not copy the example or even the wording. There are many ways to express these ideas if you understand the material. Please find your own words or face the consequences of academic dishonesty.

Part 2:

We learn that the supply and demand for a good or service can shift in response to changes in certain variables, and about how supply and demand interact to determine the market equilibrium price.

1. Please identify a price change you have observed in the last few years.
2. Use the supply and demand model to explain why the price changed in 1) above.
3. Summarize your explanation with one sentence that mentions what you think has happened to both supply and demand,and why, and how this interaction has resulted in the price change you observed. If both curves are moving, you will need to comment on the relative size of each shift to justify the price change you observed.

*Please do not try to explain the price of gas or a cell-phone; please pick something else.

Helpful tip: be sure you discuss both supply AND demand, as they both play a role in determining the price.

Part 3a:

In our everyday lives as consumers we purchase many goods and services, and we derive consumers' surplus for most of them. With that in mind, please:

Identify 3 goods or services you have purchased in the last year, and estimate the amount of consumer surplus you enjoy from those purchases. For each good, please state specifically:

1. The highest amount you would have been willing to pay.
2. The price you actually paid.
3. The amount of consumers' surplus you received from each item.

Helpful tips: Be sure to state exactly the highest price you would have been willing to pay, and the price you actually paid. The difference between these two is your consumer's surplus. There are different phrases you can use to communicate the highest price you were willing to pay, but note that the following are incorrect:

1. The price you were willing to pay. Just because you were willing to pay $20 for a good, doesn't mean this is the highest you were willing to pay.
2. The price you expected to pay. Again, this is not necessarily the highest price you were willing to pay.

Part 3b:

We are about one quarter of the way through the course. How is it going for you? Are your grades where you want them to be? If not, what can you do to remedy the situation? If you want a different result, it is imperative that you change your strategy.

Part 4:

This focuses on externalities in the context of producing goods and services, but like many concepts in our course, these ideas are very applicable to our daily lives. In this discussion, please:

1. Identify and describe a situation where you have experienced either a positive or negative externality.
2. State clearly what the external cost or benefit is.
3. Estimate the dollar value of the externality. You may not be sure how to do this, so consider asking yourself the following: If it's a positive externality, what is the highest price you would be willing to pay for the external benefit you received? If it's a negative externality, what is the lowest price you would be willing to accept as compensation for the external cost you are bearing?
4. How many people in total are affected by this externality? Recommend either a tax or subsidy amount that the externality creator should pay or receive (to "internalize the externality") based on the number of people affected. You may assume that everyone affected has the same valuation for the externality as you do.

Part 5:

In this international trade we explained the benefits of trade using the concepts of producer and consumer surplus. We know that trade barriers such as quotas and tariffs cause prices to rise, which reduces consumer surplus, but we also discussed that trade barriers save or create jobs for American workers. In a writing of no more than two pages, please:

1. identify an imported product that you purchased recently, and estimate the amount of consumer surplus you received from your purchase.
2. state how much, if any, of your consumer surplus you would be willing to give up if it meant another job could be saved for an American worker.
3. determine, if you knew that the job saved for the American worker came at the expense of a job for someone in a third-world country, if that would change the amount of consumer surplus (in dollars) you would be willing to give up.
4. determine, if you knew the surplus you gave up went directly to increase the wage of a worker in a third-world country, if that would change the amount of surplus you would give up.
5. state whether or not you would change the purchase, and the associated consumer surplus you received, in any way to redistribute the gains you personally received from international trade. If you would have been willing to give up some of the surplus you received if it went directly to the worker in the third world country, would you consider making a donation to a charitable organization benefiting workers that country (this is a way for you to give some of your surplus to the workers)? Why or why not?

Reflection:

We are a little bit more than half of the way through the course. How is it going for you? Are your grades where you want them to be? If not, what adjustments can you make to improve the situation? Please respond to these questions in a writing of less than one page (a paragraph may be sufficient).

Part 6:

Although most of the concepts developed in chapter eleven pertain to businesses, many of the different notions of cost can be applied to your life. In a writing of no more than one page, please identify a fixed, variable, marginal, and implicit cost that you have paid in the last few years.

Part 7:

Many difficult or important jobs in our society pay surprisingly low wages. For example, babysitters, social workers, nursing home workers, seasonal lifeguards, and paramedics, all typically make around $15 per hour or less, but provide services that can save lives.

This phenomenon can be explained via the supply and demand model we developed back, or from related material we learned here if we view the worker as a business owner selling their labor services.

We know that if barriers to entry into an industry are low, then businesses cannot expect to earn long-run profits. This implies that jobs that require little or no training (read: low barriers to entry) should not expect to get paid much.

For this learning portfolio assignment, please:

• Identify a job that you think earns surprisingly little given the task(s) performed
• Discuss the training necessary to get the job
• Discuss what you think the job "should" earn, and try to justify it
• What do you think would happen if the government mandated the wage you suggested above? Please apply the lessons from the material on price floors from your response

Part 8:

Many businesses operate in the "monopolistically competitive" environment. As we learned, economic profits are possible in this setting, but only to the extent that a firm can continue to differentiate itself from competing firms or produce goods at a lower cost than competitors. For example, Starbucks recently announced that it plans to offer beer and wine for sale after 4 in the afternoon in some markets. Certainly this differentiates it from other coffee shops.

For this chapter's learning portfolio assignment, please:

• Identify a business operating in the monopolistic competition setting.
• List the assumptions of monopolistic competition and explain how the business fits in with these assumptions
• Suggest a way that this business could differentiate itself from its competition

Part 9a:

Please name a good or service you or your family has purchased in recent months from a monopolist. How did the monopoly come to exist? Do you think you would have benefitted from increased competition in the market for this good or service? Why or why not?

Part 9b:

To maximize the probability you succeed at the college level, you may benefit from thinking critically about your role in the learning process. With that in mind, please (purely for your own benefit) reflect on your experience in our class, and address the following:

1. Realistically, how much work did you put into the course? Was it more or less than what you thought you would need to do?
2. If you would prefer to earn a higher grade than what you are expecting, what could you do in the future to improve your chances of earning that higher grade? Are there any steps you can take to improve your organization? What could you do to make better use of the time you allocate for studying (e.g. take a "study skills" course)? Should you be allocating more time to studying? Should you take fewer classes?
3. In this course we have used several different methods to try to stimulate learning: book reading, lecture, homework questions, articles and (maybe) videos discussing applications of economic theory, discussion with other students, preparation for quizzes/exams, learning portfolio assignments requiring you to identify economics in your life, and possibly tutoring and/or office hour. Reflecting on these experiences will provide you with useful information about who you are as a student, and what sorts of experiences maximize your ability to learn. So please relax for a minute, reflect on these various exercises, and comment on which you feel worked well for you, and which did not. How can you use this information to improve the likelihood you will succeed in future classes?