Sir Shannon Scott Williams

January 17^th, 2010

ECON220

Unit 3: Discussion Board

            When I think of perfect competition, I think of something similar to a monopoly, however the difference is that a perfect competition is a market in which all other participating markets are price-takers, (Krugan, Wells, 2009, p. 330).  In USA, the government tends to put limits on monopolies, but most obstacles for perfect competitions are left out, (Krugan, Wells, 2009, p. 331).  Choosing a perfect competition should be the matter of what is the first line of a production (eg. steel used to make automobiles).

            To my knowledge for the local area, there is a chicken farm named Kagel’s Chicken Farm.  Factors that help support Kagel’s are that there are several different types of buyers and sellers for whole chickens, eggs, and fertilizer.  Buyers would be slaughterhouses for live chickens, food stores for eggs, and those in need of fertilizer.  Sellers, like Kagel’s, would be those limited to chicken farming.

            Being that Kagel’s is a base supplier, this makes it a price-taker giving it the advantage to alter production without heavily affecting the market price for its products, also known as a standardized product.  Kagel’s and other chicken farmers sell their products at market price, a base price that is offered in the marketplace.  Perfect competitions, like Kagel’s, cannot change prices based on their production due to the ease of entry and exit for farming.  Due to this, governments do place regulations for safety.  The regulations include: all poultry establishments develop and implement a written sanitation standard operating procedures (SSOPs), requires all meat and poultry establishments to develop and implement a HACCP program, (Economic Research Service, 2009).  Other regulations are more specific to slaughterhouse industries.

            In conclusion, the perfect competitive market is narrowed down to the beginning of what a product could be.  The competitors for perfect competition are limited to those willing to participate.  In the case for Kagel’s, and others alike, their supply must weigh a certain amount before being sold.  Kagel’s products are sold at market price.  Consumers who wish to purchase products from Kagel’s are those of the slaughterhouse industry which supply uncooked or pre-cooked chickens to their consumers.  Other consumers are food stores interested in the eggs which the chickens produce.  Also, there are consumers for fertilizer which is produced from chicken manure.  In order for Kagel’s to enter and remain in business, they must meet government safety standards.  In the real world, Kagel’s has the advantages of their consumers due to the great demand from each industry.  If one industry decrease demand for a product, Kagel’s still has the opportunity to deliver to another industry.

Armstrong, Kotler. (2009). Introduction to Marketing (9^th Ed.).

Economic Research Services. (2009). “All poultry establishments develop and implement a written sanitation standard operating procedures (SSOPs),  requires all meat and poultry establishments to develop and implement a HACCP program”. Ers.Usda.Gov

Retrieved 1.18.2011, from, http://www.ers.usda.gov/briefing/foodsafety/private.htm

            Economics plays a role in all societies, both developed and undeveloped.  Even during the beginning of our time, goods have been produced, and even traded.  Thus to understand a simple economy, consider the following scenario: there are two people who each live on an isolated island.  James is one person, and Michelle is the other.  In order to survive, each person must produce and consume potatoes or chickens.  Both persons may produce any combination limited to their resources.

            Within each economy, there are opportunity cost, what you must give up in order to get (Krugan, Wells, 2009, p. 8), which applies to James and Michelle’s scenario.  Given that James may produce either 80 pounds of potatoes or 40 chickens per year, what are his opportunity costs for potatoes?  What are his opportunity costs for chickens?  See the below calculations:

James opportunity costs for 1 potato: 80 potatoes = 40 chickens== > 80/80 potatoes = 40/80 potatoes == > 1 Potato = 1/2 Chicken.

James opportunity costs for 1 chicken: 40 chickens = 80 potatoes== > 40/40 Chickens = 80/40 Chicken == > 1 Chicken = 2 Potatoes.

Summary for James: Opportunity cost of 1 potato is 1/2 chicken. Opportunity cost of 1 chicken is 2 potatoes.  Note, we cannot assume that James can produce a fraction of a chicken (1/2 chicken), only we calculate this to determine the opportunity cost for a potato.
 

Michelle, if devoted all of her time, she can grow 200 pounds of potatoes each year.  If she were to raise chickens, she could grow 50 chickens per year.  What are her opportunity costs for potatoes?  What are her opportunity costs for chickens?  See the below calculations:

Michelle’s opportunity costs for 1 potato: 200 potatoes = 50 chickens== > 200/200 potatoes = 50/200 Potato == > 1 Potato = 1/4 Chicken.

Michelle’s opportunity costs for 1 chicken: 50 chickens = 200 Potato== > 50/50 Chickens = 200/50 Chicken == > 1 Chicken = 4 Potatoes.

Summary for Michelle: Opportunity cost for 1 potato is 1/4 chicken.  Opportunity cost for 1 chicken is 4 potatoes.  Note, we cannot assume that Michelle can produce a fraction of a chicken (1/4 chicken), only we calculate this to determine the opportunity cost for a potato.
 

            Now that we understand what James and Michelle can produce and their opportunity costs, let’s take a look at who has the advantages.  Obviously Michelle, can produce more potatoes, or chickens, than James throughout the year.  Due to this, she has the absolute advantage, an activity if he or she can do better than other people (Krugan, Wells, 2009, p. 33).  Moving on, to comparative advantages, producing a good or service if the opportunity cost of producing the good or service is lower for that individual than for other people (Krugan, Wells, 2009, p. 31).  Michelle has the lower opportunity cost for potatoes, ¼ chicken, based on the previous calculations. James has the lower opportunity cost for chickens, 1/2 potato, based on the previous calculations.  Due to these comparative advantages, Michelle should specialize on potato production where as James should specialize on chickens.

            Suppose if Michelle and James specialized on their comparative advantages and decided to trade their resources at a rate of 2.5 pounds of potatoes per 1 chicken.  How would this affect their economy?  See below calculations:

Before trade = Michelle = 25 chickens = 100 Potatoes == James = 20 chickens = 40 potatoes

Specialization = Michelle = 200 potatoes == James = 40 chickens

Math for Michelle = 25 x 2.5 = 62.5 == 200 – 62.5 = 137.5

Math for James = 40/2.5 = 16 == 40 – 16 = 24

After trade = Michelle = 25 chickens = 137.5 potatoes == 24 chickens = 40 potatoes

            Based on the calculations, each person would be better off if they conducted a trade in their specialized product.  Each person would work less to get more, and result in profit from trade.

            In conclusion, societies, large or small, developed or undeveloped, an economy exists regardless the situation or at least wherever there are resources involved.  Relative to James and Michelle’s situation, everything begins with opportunity costs.  From that point on, absolute and comparative advantages can be calculated in order to determine what this person or that person should specialize in producing if they consider to trade.  It is logical that economies across the world will trade due to the different locations of limited resources such as oil, iron, food, etc.  and how each are able to produce them.

            Krugan, Wells. (2009). Economics (2^nd Ed.).

            Worth Publishers. AIU Online Version

Sir Shannon Scott Williams

December 30, 2010

ECON220

Unit 1: Discussion Board

            A time ago, around 2008, I managed a restaurant for employment.  Then one day a gentleman offered me a job to manage an automotive plant.   Given the situation, I practiced tradeoff as defined in our textbook: a comparison of costs and benefits; (Krugan, Wells, 2009, p. 8).

My tradeoff, based on resources of labor, was either to continue working at the restaurant or take the new job.  Working at the restaurant would insure job stability due to high demand of food; however my salary would remain the same for quite a while.  The other side of tradeoff was to accept the new job which came with a higher salary, however there would be risk involved due to a crisis in the economy.  If the economy did not show improvement, then the company would fail.  Clearly, my tradeoff helped me understand what career path alternatives I should take.

            My alternative by choosing to stay at the restaurant, on a long enough timeline, I could have worked my way up to owning my own restaurant and have great job stability, but earn a lesser pay.  The other alternative is to take the new job and work my way up the career latter with higher pay and risk job stability.  The second alternative has a greater value due to the opportunity which is given regardless if the company fails or not.  Even if the company fails, I could always return to the restaurant and continue employment there.  Granted, my choice was to take the new job.

            Krugan, Wells. (2009). Economics (2^nd Ed.).

            Worth Publishers. AIU Online Version