Archive for the 'Comparative advantage' Category

Mar 04 2008

Free trade and low death rate = bad business

How do Chinese granite quarries and a decline in the US death threaten a family business in rural Vermont?

Listen and find out…

Source: NPR Economy Podcast, 2/29/2008 

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Feb 12 2008

A macroeconomic mystery – the gap between America’s “rich” and “poor”

You Are What You Spend – New York Times

The richest 20% of Americans earn 15 times the income of the bottom 20%.

Fact: The richest 20% of Americans only consumer 4 times as much as the poorest 20%.

Why don’t the richest 20% consume 15 times as much as the poorest 20%?
Consumption Gap
The author of this NYT opinion piece claims that the gap between America’s rich and poor is not as stark as the income figures suggest. While before tax income of the top 20% is around $150,000, the poorest 20% earn only around $10,000. Clearly these numbers indicate an enormous income gap in America.

However, when it comes to consumption, the poor consume an average of $18,000 on everything from food to housing to entertainment to transportation. The richest 20%, on the other hand, consume an average of only $70,000, less than half their before-tax income.

So the question is, is standard of living based on our income, or on our consumption? If it’s income, then there’s certainly a huge gap in standard of living between the rich and poor. But if we believe it’s consumption, then the gap is narrowed dramatically. The author claims the latter:

To understand why consumption is a better guideline of economic prosperity than income, it helps to consider how our lives have changed. Nearly all American families now have refrigerators, stoves, color TVs, telephones and radios. Air-conditioners, cars, VCRs or DVD players, microwave ovens, washing machines, clothes dryers and cellphones have reached more than 80 percent of households.

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Nov 13 2007

SAS Economists Podcast #10: Perfect competition and comparative advantage in… the World of Warcraft!

by Hansen Gu and Elaine Lung

Economics is not just for people living in the “real” world, you know! No it’s not. For some of us in high school, we actually prefer the fantasy life of the World of Warcraft. And yes, there is a real economy in our world too. And yes, it does exhibit characteristics of pure competition, and YES, workers do specialize their production based on their own comparative advantage!

Jeeze, why do I feel like I’m always having to defend myself here? Anyway, to learn more about the economy of our favorite fantasy world, watch this video!

[youtube Z0lx4Bko70I]

7 responses so far

Oct 15 2007

Comparative advantage as the basis for trade – oh, what a beautiful concept!

This week in comparative advantage | Free exchange |

The writers at Free Exchange find the concept of comparative advantage to contain almost enchanting beauty and hope for a better world. Perhaps they romanticize it a bit much, but this is an interesting little piece, nonetheless:

The principle of comparative advantage is one of those ideas that can completely transform the way you see the world, once you really internalise it. That everyone, even those who are best at nothing, can benefit themselves and others through co-operation is a beautiful idea that points to the possibility of a benevolent world.

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Aug 29 2007

Comparative advantage, plain and simple

Managing Globalization » Business Blog » International Herald Tribune » Blog Archive » Employment versus the environment?

This article represents the perfect example of comparative advantage. Almost a textbook version of the concept of countries producing the types of products for which they have a lower relative opportunity cost than other countries. Read this very short article and discuss below how this illustrates the basic concept of comparative advantage, specialization and trade. What decision should the European Commission make and why should they make it?

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