Q1. What does the term \"economies of scale\" mean? Q2. Define \"opportunity cos
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Q1. What does the term "economies of scale" mean? Q2. Define "opportunity cost." Explain "comparative advantage" in terms of opportunity cost. Cite the example used in the video in your answer. Q3. Why are workers in industrialized countries more productive than those in developing countries? Q4. What are some arguments against free trade per this documentary? Q5. What is the infant-industry argument? Q6. Differentiate between import-substituting industrialization and export-oriented industrialization. Which approach has been more successful? Why? In your answer, compare the relative success of East Asia and Latin America.Explanation / Answer
economies of scale are the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase.
Opportunity cost: a cost that is measured in terms of what you give up of some other
good. Time spent producing cars is time taken away from producing bread, and vice
versa. Note that when we discuss gains from trade, the opportunity cost is not
measured in dollars but in units of some good or activity that is given up.
The person or country that has the smaller opportunity costof producing a good is said to have a comparative advantage in producing that good.Comparative advantage determines which country will specialize in which good.
1. Many of the predictions of growth theory can be successfully consideredin a cross-section context by examining the levels of income acrosscountries
.2. The large variation in output per worker across countries is only partiallyexplained by dierences in physical capital and educational attainment.Paralleling the growth accounting literature, levels accountingnds a large residual that varies considerably across countries.
3. Dierences in social infrastructure across countries cause large dierencesin capital accumulation, educational attainment, and productivity,and therefore large dierences in income across countries.
4. The extent to which dierent countries have adopted dierent socialinfrastructures is partially related to the extent to which they havebeen influenced by Western Europe. Using distance from the equatorand language data, we conclude that our nding that dierencesOutput per Worker Across Countries 39in social infrastructure cause large dierences in income is robust tomeasurement error and endogeneity concerns.
The Jobs Argument
The National Security Argument
The StrategiThe Unfair-Competition
Argumentc-Protection Argument
The Infant-Industry Argument:In some industries, pretty significant learning curves exist such that production efficiency increases rapidly as a company stays in business longer and gets better at what it is doing. In these cases, companies often lobby for temporary protection from international competition so that they can have a chance to catch up and be competitive. Theoretically, these companies should be willing to incur short-term losses if the long-term gains are substantial enough, and thus shouldn't need assistance from the government. In some cases, however, companies are liquidity constarined enough that it can't weather the short-term losses, but, in those cases, it makes more sense for governments to provide liquidity via loans than to provide trade protection
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