Thinking like an economist: The basic vocabulary of the field - Admission/Application Essay Example

Thinking like an economist: The basic vocabulary of the field How does a college education increase one’s human capital? College education increases one’s human capital in many ways. First, education is one way of assuring of individual employment and earning. Education, skills and training are factors of human capital, but education should come first. Why, because education facilitates learning of the new skills and training for work that ends up with productivity and efficiency in using limited resources of the company.

Vice Chairman Jim Saxton of the US Congress Joint Economic Committee reported that the amount of education of a person determines his earning capacity; and that the more he learns, the more he absorbs new information, technology and new skills easily. This is particularly true since I believe that when the human capital is developed, his productivity level is improved, he turns out a good output of work that in turn increases his value and earnings. I also think that the amount of education one has acquired determines the gap in the income of professionals and the lowly-educated employees.

For instance, Vice Chairman Saxton presented in his committee report saying that professionals earn around $80,000 per year while the high school graduates earn the average of $26,300 per annum. This amount of pay tends to increase along with the length of time spent by the employee in the company because of bonuses and longevity pay. Aside from the remunerations there are also non-cash benefits from investing in education to increase human capital. In a highly competitive labor market, those with higher education are preferred by employers because they contribute to the over-all productivity of the company.

Thus, it can be concluded here that education is significant factor that improves the life of a person. 2. Does your college tuition fully reflect the opportunity cost to you of taking the course? What is your personal opportunity cost of taking this course?  When I go to college naturally, I spend money for tuition fee for taking the college course I want. In enrolling in college, I lost the opportunity to earn income that other high school graduates do. Opportunity cost is the comparison of alternatives of going to college or to work.

In most cases, there is a need to assess the costs and benefits of the options taken, and the benefits of foregone opportunity. When I choose the alternative of going to work, it means I have to give up college education and forego the opportunities that go with it. Let us take an example of my personal opportunity cost in taking this through some assumptions. Suppose that the amount of going to college for one year is $5,000. In assessing the opportunity cost, we must add to $5,000 the amount of foregone opportunity of working.

We should consider the lost opportunity to earn $20,000 a year if I worked full time. So the actual cost of going to college is $5,000 for direct expenses of going to college and the $20,000 of foregone salary, so it is $25,000. When we consider the cost and benefit, it would show that going to college has a long term benefit because as shown in Vice Chairman Saxton’s study, the earnings of a college graduate is twice as much higher than a high school graduate. Simply put, when I finish college, my earnings bracket is $46,000 as against $26,000 of those with lower education.

By the above example, opportunity cost to me, means that the choice I make will give me the maximum value of earning twice if I choose college education over the short term benefit of earning wages right after high school graduation. 3. Does a reduction in trade barriers cause a country to move closer to its production possibilities curve or does it cause the production possibilities curve to shift outward? What factors would cause the production possibilities curve to shift outward (economic growth)?

Trade barriers are government restrictions placed by the government to protect their domestic production. Common trade barriers according to WiseGeek are subsidies, tariffs, quotas, duties and embargoes. Let us assume that the production possibility curve at left is the efficient in combination of output of grain and wine in Europe. PPC at point a is not efficient because it is operating beyond capacity. The country could not choose point b because that would be above the accepted capacity level.

If, for instance, Europe reduces the tariff or tax on imports on grains, and that reduction is not possible for wine, there will be a change on production possibilities that will cause an outward shift from the production frontline. This would mean an outward shift for the production of more grain than wine Shifted Production Possibility Frontier Source: NetMBA The opportunity cost of production is shown in the PPC illustrations above showing the effect of government policies wherein resources have to be given up to produce more grain.

With the successive reduction of tariff on grain, we see the increase in the production of grain and some production of wine has to be given up. What factors would cause the production possibilities curve to shift outward (economic growth)? The factors of production that could cause the production possibilities curve to shift outward are the increase in land use, labor mobilization, capital and technology (Rithenberg & Tregarthen, n.d.). Supposing in our example of production possibilities of grain and wine, when more land use is devoted to production of grain or wine, the PPC would shift outward to create a new slope of demand for the product.

PPC possibilities curve shift outward when physical and intellectual services of people are enhanced. It can be increased by hiring more workers or by lengthening their working hours. It can also be improved by training and education. Capital increases production as this facilitates funding for resources needed in producing the needed quantity of goods. And lastly, technology causes change in the PPC because of its rapid change of development and usefulness in production 4. Using the same case, what role did comparative advantage play in trade among member nations?

 What was the effect on the standard of living among trading nations? The role comparative advantage played in trade among member nations is the specialization made on the basis of opportunity costs. In our example, it is the ability of European countries to produce something with a lower opportunity costs than other countries. In our PPF curves above, when Europe lowered its tariff on trade for grains, they had comparative advantage over other countries that imposes higher tariff for the same products.

EU’s comparative advantage is producing grains at lesser cost because of lower tariffs than other countries. Another example that could be established here is when EU is able to produce more grain efficiently than China. China for this example is able to produce more wine efficiently than EU. Both have comparative advantage as EU is to grain and China is for wine. To take the opportunity of comparative advantage, EU can produce only grains and export it to China and China produces nothing but wine and export to EU and both can acquire PPC possibilities that shift outside its normal curve and have to rely on the opportunity cost.

In this case, EU and China are better off in specializing in their competitiveness and trading with each other than in producing both crops by themselves. Both countries get better export returns and have more resources devoted to other economic opportunities. The effect of comparative advantage to the standard of living of among trading nations is earnings derived from the specialization in the production of wine for China and Grains for EU. The earnings they get from this trade exchange enables individuals, firms and nations to get more than they could of other things.

REFERENCES NetMBA (n.d.). Production Possibility Frontier. Retrieved 12 October 2011 from http://www.netmba.com/econ/micro/production/possibility/ Rittenberg L. and T. Tregarthen (2009). Chapter 2 (sections 1-4): Confronting Scarcity: Choices in Production Principles of Microeconomic Analysis.  FlatworldKnowledge.com. Retrieved 12 October 2011 from http://www.flatworldknowledge.com/node/28243#web-28252 Saxton, Jim (January 2000). Investment in education: Private and public returns.

Joint Economic Committee Study United States Congress. Retrieved 12 October 2011 from http://www.house.gov/jec/educ.htm Wise Geek (n.d.). What are trade barriers? Retrieved 12 October 2011 from http://www.wisegeek.com/what-are-trade-barriers.htm