Macro & Micro economics - Essay Example

? Macro & Micro economics of the of the Number Macro & Micro economics Doll Production Process There are varieties of dolls that are produced in the modern consumer goods market. Though there are certain machines that help to shape up dolls, the production of dolls is majorly a labor intensive method production that requires more of laborers than capital machinery equipments. With the rising income levels of most of the economies, the demands for entertainment products like dolls have substantially increased. In the modern age, dolls are often made of rubberized plastic materials. These materials comprises of crude oil and national gas in them. There are special machines that help to give shape to standardized pieces of doll parts in the manufacturing process. Nowadays to park more potential buyers, doll manufacturing companies use special chemicals to produce dolls of various skin colors to make them attractive to various types’ customers belonging to different global zones. Car Production Process Unlike doll production, automobile industry or car production process is highly labor intensive in nature. Mercedes, Honda, Tesla, BMW etc are the various companies manufacturing cars. With the growth of per capita income levels and the improvement in the rate of urbanization in most of the economies in the world, the proportions of cars demanded in the market have increased significantly. However it should be considered that manufacturing of cars requires high state of technology and exclusive machineries. It is clearly observed in the video that the level of car production process takes place via various steps, where there are huge modern machines automatically executing the manufacturing process. Thus unlike doll industries, car manufacturing industries requires large amount of electricity and petroleum for its working. Hypothetical Input Output Matrix Industry Input Costs Toy Industry (manufacturing dolls) Automobile Industry (manufacturing cars) Cost of Labor Input $153 million $85 million Cost of Capital Input $ 60 million $200 million (Source: Authors Creation) The above hypothetical input industry 2x2 matrixes clearly shows that the gross cost of labor input is more than capital input in the toy industry producing dolls. On the other hand, the automobile industry manufacturing cars require more expensive capital input cost than labor cost. Thus it is quantitatively proved that the toy industry is a labor intensive industry and the car manufacturing industry is a capital intensive industry. Factor Intensity and Factor Abundance China is the most populated nation in the world. Perhaps this is the reason for which the country is rich in terms of labor resource. The nation always concentrates in labor intensive modes of production. It is a labor abundant nation, where the size of its labor force is 937.27 million as recorded in 2011. On the other hand, U.S. is a nation rich in terms of financial resources. This is the reason for which the country is a capital abundant nation that is rich in terms of technological knowhow. The following section of the essay will concentrate on the factor endowments of the two countries and the factor intensities of the industries in a graphically represented Hecksher Ohlin model. Figure 1: Hecksher Ohlin Model Car Production Doll Production The production Possibility Frontiers (PPF) shows the two combinations of two goods that can be produced with the given amount of resources and state of technology1. The steeper PPF is of U.S., signifying capital abundance and intensity in production. The flatter PPF is of China, signifying labor abundance and intensity in production. The convex lines are the isoquants that show the different combinations of inputs that can be utilized to produce the same amount of output. B and E are the points inside the PPF of U.S. and China respectively, showing situations where all the resources are not efficiently used. A and G are the autarky or non trading positions of U.S. and China respectively. At this stage, U.S. produces more of cars than dolls and China produces more of dolls and less of cars. C and F are the reading points for U.S. and China respectively. At these points the countries reach at higher isoquants. D is the trading optimal point in the world market. It denotes a point outside the PPFs of the two countries. This means at this point the state of technology has to be improved. CXF is the trade triangle, where U.S. exports CX amount of cars and imports XF amount of dolls. For both the countries, the factor intensities used in production process is compatible with the factor abundance. Like U.S. is a capital abundant nation, it concentrates in capital intensive car production process. Factor abundance deals with factor endowment while factor intensity involves the method of production. Toy Exports of China China is a developing nation rich in terms of productive labor force. The country has adequate supply of laborers; perhaps this is the reason for which the business enterprises appoint skilled, unskilled and semi skilled workers in China at low wage rates. Following the principle of comparative cost advantage, business firms in China actively participate in the manufacture of dolls. It is empirically estimated that China produces 80% of the toys traded in the global market. Guangdong Province is the region in the country most promisingly participating in the production and sales of toys worth of almost $12 billion annually. Among the approximate 6000 toy making factories in China, almost 1.5 million workers are employed. This shows that the expanding toy business in China has largely helped in generating large amount of toys in the employment opportunities in the country. Such efficient steps in resource allocation have helped China to be an emerging BRIC economy in the world2. Toy Imports of United States The U.S. has been found to import toys in large scale long back. If the long term statistics is considered, it can be found that the country is strategically reducing its containerized toy imports. Though the gross import of toys in the U.S. economy has declined by almost 11.3% from 2011 to 2012, the net volume of toys imported in the country was 524644 TEU (containerized toys) in 2012. Almost 81.7% of the total toy imported by U.S. is from China. Despite of the declining aggregate share of imports, the U.S. is claimed to be the biggest importer of toys in 2012 in the global market3. It is also estimated that the share of toys imported by U.S. from Germany and Israel have significantly increased4. Car Imports of China China is a country that largely imports cars and car parts from the global market. Many car producing companies like General Motors have merged its business with automobile companies in China like First Automobile Company (FAW). The country has an emerging economy and the growing middle-income individuals in the nation have significantly augmented their demands for cars. International business companies like Mercedes, BMW etc. desire to trade in China and enjoy the higher returns in trade. From 2001 to 2010 the demands for car imports in China have increased by almost 24%. As per the regulations of the World Trade Organization, the country have now relaxed the trade barriers and facilitated in greater imports of cars. Car Exports of United States United States of America is a developed country well known all over the world for its large pool of financial resources and technological expertise. Capital intensive car production business in highly developed in U.S. Companies like Tesla, Ford etc are the large car manufacturing companies based on U.S. It is true that the country largely exports car and car parts in the global market. It was declared by the nation in 2012 that it would double its exports of car parts in 2012 to Russia. It has also been claimed by the country that the current exchange rates and the free trade pacts have provided further advantage to the country to export more car parts and cars in the other economies in the world5 Read More