MicroEconomics Unit1 - Assignment Example

Opportunity cost is the amount of other products that must be foregone or sacrificed to produce a unit of a product (McConnell & Brue, 1993). In the case of Mary and John, Mary’s opportunity cost of producing 1 pound of corn will be .25 pigs ( 50 pigs/200 pounds of corn). This means that she has to sacrifice the opportunity of producing 50 pigs if she wants to produce 200 pounds of corn per year. But if she choose to produce pigs, the opportunity cost that she will incur will be 4 pounds of corn (200 pound of corn/50 pigs).

This means that because of producing 50 pigs, the opportunity of producing 200 pounds of corn will be foregone. On the other hand, John’s opportunity cost of producing corn is .5 pigs. He will lose the opportunity of producing 40 pigs if ever he opted to produce 80 pounds of corncorn. However, if John will produce pigs, the opportunity cost will be the 2 pounds of corn per 1 pig produced. This only means that the opportunity of producing 80 pounds of corn per year will be lost if he choose to produce 40 pigs per year.

Absolute advantage compares the quantity of inputs required to produce a product or good (Mankiw, 2004). From this definition, we can say that the producer or individual that will require fewer or lesser resources to produce a good is said to have an absolute advantage in the production of that good. This means that Mary has the absolute advantage in production of the same goods since she has the highest productivity. This is because if we will combine the production of each one, Mary has total production of 250, 200 pounds of corn and 50 pigs per year while John has only 120, 80 pounds of corn and 40 pigs per year.

Comparative advantage is related to absolute advantage but they are measured differently. Absolute advantage is measured through comparison of costs of production for each producer while comparative advantage compares the opportunity costs of production for each producer (Mankiw, 2004). This means that the producer with lower opportunity cost is said to have a comparative advantage over the other. In the situation of Mary and John, Mary has a comparative advantage in the production of corn. This is because Mary has to sacrifice .

25 pig to produce 1 pound of corn while John has to forego .5 pig to have 1 pound of corn. But John has comparative advantage in producing pigs because Mary has to let go of the opportunity of producing 4 pounds of corn to produce 1 pig but John has to do only 2 pounds of corn. Specialization and trade is determined by comparative advantage (Mankiw, 2004). If producers like Mary and John will specialize in the production of good that they have comparative advantage and will just trade or exchange for the product that they are not at advantage, they will be producing more and be better off.

If Mary will concentrate on producing only corn and trade the 50 pigs for corn at the rate of 2.5 pounds of corn for 1 pig, then she will have additional 125 pounds of corn. However, specializing in the production of pig and trading 80 pounds of corn at the same rate (2.5 pounds of corn for 1 pig) will give John 32 more pigs. People and the society can gain from trading. Because trading allows people or producers to specialize, their resources can be utilized and managed properly. This will help solve the problem of scarcity.

Specialization can also increase the total output of a nation or economy and can improve the technology in production process. “There is no such thing as free lunch.” This is very applicable in all the things that we do- be it at home, at work, at school. This only reminds us that we have to face tradeoffs whenever we make decisions and these moves will have different consequences. There will be times when we may be at advantage and gain or benefit from our decision but there will also be times when we encounter harmful effects of not so good decisions that we made.

I can relate these topics in choosing my career or job. In choosing a job position, aside from knowing the history of the company to work with and my job specifications and responsibilities, I have to inquire about the rate of compensation to be offered. Because I believe that this will be my worth for the company or this is how much the company value me as an employee. Tradeoffs happen when I made the decision, because after evaluating the pros and cons, costs and benefits and the advantages and disadvantages, I have to forego some job offers for the sake of my chosen career.

The evaluation helped me see and realize not only my possible benefits from each job but also the effort and work that each job offers will be requiring me. I chose the job offer which will give me the just compensation for the work that I will do for them. In facing tradeoffs, I am the one who benefitted the most next to my company of course. This is because from all the offers that I received, I chose the one where I can fully utilize my knowledge and skills and that I can contribute to the success of the company.

BIBLIOGRAPHY Mankiw, N. G. (2004). Principles of Macroeconomics. Ohio: South-Western. McConnell, C., & Brue, S. (1993). MICROECONOMICS: Principles, Problems and Policies. New York: McGraw-hill, Inc.