A Rice Culture Rice grown in Japan Grown on small farms Japanese consumers pay up to 7x more than US consumers Multiple uses of rice (clothing, mats, & household items) Japanese government subsidies Powerful farmers’ lobby 700% tariff on imported rice
Economic theories Absolute advantage - a country can produce more units of a product at a lower cost using fewer resources than other countries Ex) US - absolute advantage over Japan in rice & cotton production, can produce at lower price per unit than Japan Ex) US - absolute advantage over France in cheese production; can produce at lower price per unit than France Ex) Canada - absolute advantage with lumber production; can produce at lower price than other countries Ex) China - absolute advantage over the US in toy production; can produce at lower price than US
Economic theories (con’t) Comparative advantage - a country should specialize in the production of a product that it can produce relatively better, or more efficiently than other countries More efficiently includes being able to produce product with lower opportunity cost Ex) Japan – comparative advantage over US producing rice, can produce more efficiently with lower opportunity cost than US Ex) US - comparative advantage over Japan producing cotton, can produce more efficiently with lower opportunity cost than Japan Ex) Brazil - comparative advantage over US producing coffee; can produce more efficiently with lower opportunity cost than US http://www.youtube.com/watch?v=Pd_qs8ueIWw http://www.youtube.com/watch?v=Vvfzaq72wd0 Two you-tube videos on absolute & comparative advantages
Economic theories (con’t) Production possibility curve - a hypothetical representation that shows tradeoff in production shifting resources between 2 products Producing more of 1 product reduces production on other Tradeoff slope represents opportunity cost http://www.youtube.com/watch?v=uW wrb--yk-w&feature=relatedhttp://www.youtube.com/watch?v=uW wrb--yk-w&feature=related Production possibility curve video
Economic theories (con’t) Opportunity cost - value of what is given up in producing 1 product when another is produced Ex) Japan - more efficient producing rice than cotton; focuses more resources on rice Ex) US - more efficient at producing cotton than rice; focuses more resources on cotton http://www.investopedia.com/video/play/opportunity-cost/ Opportunity cost video
Economic theories (con’t) Commodity - raw material or agricultural product that may be same regardless of who produces it Ex) Oil from Saudi Arabia - just as valuable as oil from Venezuela Ex) Rice from US, Japan or Thailand – viewed same by most western consumers
Global factors of production A country’s comparative advantage comes from its global factors of production. The US has available resources in all factors of production 1. Natural resources - includes land, forests, minerals, oil, & bodies of water Many African countries rich in gold, diamonds & other minerals Saudi Arabia, Libya, Iraq & Venezuela - rich in oil. US rich in farmland, fresh water &natural gas.
Global factors of production 2. Human resources - (or labor) includes workers, management & entrepreneurs Developed countries such as Japan, Germany, UK & US rich in skilled labor & management expertise China rich in low-cost labor
Global factors of production 3. Capital resources - (or man-made items) includes buildings, machinery & funds Developed countries such as Japan, Germany, UK & US rich in capital; funds to invest in infrastructure, business ventures. Underdeveloped countries such as Guatemala, Liberia & Nepal lack capital to invest in infrastructure & business ventures
Comparative advantage of nations Country’s industries develop through strong internal competition Ex) Coke vs. Pepsi; AT&T vs. Verizon Japanese companies - comparative advantage in producing small home electronic devices such as TVs & cameras US -comparative advantage in entertainment industry, exporting movies & TV shows Ex) Disney exports theme park management skills to Japan, Hong Kong, etc. Only the strongest & best producers survive
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