Emmett+P

Well as I was looking for an example of comparative vs. absolute advantage I came across a sight that was teaching comparative advantage and this was one of the practice examples, so I thought that I would just figure out comparative advantage fro their example and explain.

**EX:** Consider two countries producing two products – digital cameras and vacuum cleaners. With the same factor resources evenly allocated by each country to the production of both goods, the production possibilities are as shown in the table below. To identify which country has a comparative advantage in a particular product you need to analyze the opportunity costs for each country. For example, were the UK to shift more resources into higher output of vacuum cleaners, the opportunity cost of each vacuum cleaner is one digital television. For the United States the same decision has an opportunity cost of 2.4 digital cameras.
 * || Digital Cameras || Vacuum Cleaners ||
 * UK || 600 || 600 ||
 * United States || 2400 || 1000 ||
 * Total || 3000 || 1600 ||

If the UK chose to reallocate resources to digital cameras the opportunity cost of one extra camera is still one vacuum cleaner. But for the United States the opportunity cost is only 5/12ths of a vacuum cleaner.

Therefore, the UK has a comparative advantage in vacuum cleaners and the United States has a comparative advantage in producing digital cameras because its opportunity cost is lowest. Nice job Emmett. 10/10



Here is an example of a negative externality. There is a spill over, in this case the man's Over abundance of gas emissions, that is effecting the third party, the people that were unfortunate enough to step on to the elevator with this man and his chili-dog. The other people weren't planning on having this spill over effect but it was the case never the less. This comic is also referring to the subject of Cap and trade that we talked about in class. The idea behind it is to reduce the amount of pollutants that we emit into the air by potting a price on it. The price goes up and the demand will go down. The principle is sound but as you can see in this cartoon, that won't always be the case. It points out the fact that there are greedy people out there who need to pollute and just putting a price on it won't necessarily prevent people form polluting. The man acknowledges that he is polluting more than once person should but he says that if he buys the other persons then everything will be fine. But as you can see in the picture even if there is only one person doing the polluting there can still be a negative result for everyone. I'm not sure this is a negative externality! It looks like a direct cost, not a "spillover" effect. The cartoon is really a slam on the cap and trade system where the U.S. would buy up all the extra permits to pollute, thus not helping anyone with lower emissions. 8/10 -SW



Here we have a person holding out a nut and a squirrel tentatively eating out of the persons hand. This picture can be compared to the graph of economic growth. If the person holds the nut out long enough and doesn't make any fast movements the squirrel will eventually come over and eat the nut. Similarly if a business has lower prices then people will be more likely to go out and spend their money which causes consumption to go up, which also causes GDP to go up. After a while the business starts making more money and can now start producing more, but before they can do that they have to hire more workers. in the example with the squirrel, the squirrel gets more comfortable with the person and the person doesn't have to be so still, they can move around a little more. then the squirrel starts getting closer and closer to the person to get the nut from them. Just the same, the business can start raising its prices little by little as more people now have jobs and are spending more money. Eventually society the squirrel gets so comfortable with the person, or businesses, that it jumps right up into its lap. Then the person gets too excited, businesses raise their prices too high for the workers wages, and the squirrel runs away, or the people stop spending as much money. Then the businesses stop making as much because consumption goes down, which drives GDP down and then the businesses have to start laying people off in order to keep making money. Eventually businesses get smart and realize that they need to lower prices in order to draw the consumers back in. in our example with the squirrel, the person has to start all over again gaining he squirrels trust before it will eat out of they hand again. And around and around the cycle goes as the graph of economic growth slowly moves up along the theoretical line. 10/10 Fun comparison Emmett. You've made my "consumer squirrel" into a theory!

For this example pay no attention to the man inside the snowball and just think about the snowball itself. As I'm sure you know when you roll a snowball down a hill more snow sticks to it and it continues to get bigger and bigger until it gets to the bottom of the hill or there's no more snow, but conceivably if there was a large enough hill and enough snow it could go on forever continuously getting bigger. Well that is the same way the Keysenian Multiplier Effect works. the principal is sound, i spend a dollar at stinker station and that transaction boosts GDP by one dollar. Now the owner of the Stinker Station takes that same dollar and spends it at Albertsons, that transaction also boosts GDP by one dollar. Now lets recap, my one dollar that I have spent at the Stinker has now been magically turned into two dollars in GDP. This is a miracle! All we have to do is spend one dollar and GDP will continuously go up and up forever! But sadly, in most cases this is not so. Most people make one silly mistake to prevent this from happening, and that is they save their money. GASP! Yes it's true, but there is an equation to help us figure out how far the dollar will actually go. And that is the expenditure multiplayer formula. How it works is it takes into account how much people actually spend (MPS), for our example we will use 90% or .90, and the amount of money that people save (MPC) we will use 10% or .10. What you do is you take 1/MPS and that gives you your multiplier. in or case we will do 1/.90 which = 1.1111. then you take that and you times that by the original amount of money. Now we take the 1 * 1.1111 = 1.1111. so the actual amount that will be accounted for in GDP is only the 1.1111 and not the infant amount of money that we first came up with. Sadly just like the snow ball in the picture we ran out of snow (Money) because people are going to save a certain amount of every dollar that they earn. Yes, good explanation and visual. Poor dude, looks like he got caught up in the multiplier. Do be careful though. You say $1 spending turns to $2 for GDP. Actually, you have to factor the MPC in so $1 goes to $1.90 if the MPC was .9 10/10