tag:blogger.com,1999:blog-6598831864333990375.post8719315156251918851..comments2023-05-08T04:01:34.561-08:00Comments on Students Who Enjoy Economic Thinking: Some thoughts about opportunity cost...Adam Levyhttp://www.blogger.com/profile/15257124483756325652noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-6598831864333990375.post-49494803383899395792011-11-27T01:15:51.754-09:002011-11-27T01:15:51.754-09:00If you enjoy economic thinking perhaps you might b...If you enjoy economic thinking perhaps you might be interested in addressing this <a href="http://noahpinionblog.blogspot.com/2011/11/can-society-reduce-its-debt-without.html?showComment=1322314377874#c904031421326001152" rel="nofollow">opportunity costs challenge</a>.Xerographicahttps://www.blogger.com/profile/14978832439622230018noreply@blogger.comtag:blogger.com,1999:blog-6598831864333990375.post-1603353323731392812011-10-12T21:20:39.172-08:002011-10-12T21:20:39.172-08:00Well for some reason my post didn't go through...Well for some reason my post didn't go through so I have to rewrite it but it will be shorter. <br />Let me first address the question about globalization and technology. If anything globalization means that we have increased our interdependence, which results from the increased division of labor and knowledge. Because of that increased division of knowledge, productivity has increased, we have witnessed economies of scale resulting from that increased productivity, which has led to lower costs of production because goods and services are not supplied by individuals or firms in regions or countries where they have a comparative advantage (meaning a lower opportunity cost than us) in producing these goods and services. So if anything the effects of that increased division of labor and knowledge and resulting interdependence that we call globalization has increased the opportunity costs for us to do those things ourselves. What it takes a worker from China to assemble an Iphone it would take us much more time to do and as a result with that time spent assembling that iPhone we would be foregoing the opportunity to develop new drugs, innovate, new technologies, etc. To do things we have a greater comparative advantage. Similarly we could imagine that would apply to us making our own shirts, shoes, pants, hats, etc. <br /><br />My second point is related to the question about asymmetric information. In my original post, I pointed that Wheelan ignores points made by Akerlof that there are market institutions/mechanisms that have emerged to mitigate those problems. When you go online buy a used book (like I sometimes do and sometimes I buy those books in foreign countries because of my research), I am aware that the reseller of the book might not tell me the truth about the book condition or might not even shipped the book to me even though I paid for it. Being aware of this, I go read previous customers ratings and reviews. Similarly, you have mechanisms such as warranties, certifications, consumer's reports, Underwritten labs that are private market base mechanisms that have emerged to help us minimize these information problems. Kenneth Arrow who's really the first to formalize these issues mention in the postscript of his paper on Healthcare where he discussed these asymmetric information problems is clear on this there are market institutions that have emerged to minimize the problems. <br /><br />Coase had a great quote, which is: "Until we realize that we are choosing between social arrangements, which are all more or less failures, we are not likely to make much headway"<br /><br />His argument is that while the perfectly competitive model is useful as an imaginary construction to analyze what's happening when things are not perfect, to understand market failures, it's a very poor tool to be used for normative purposes and develop policies. <br /><br />I would invite you to read this article by Gary Becker in the WSJ that he wrote last month.<br /><br />http://online.wsj.com/article/SB10001424053111904199404576536930606933332.htmlAlexandre Padillanoreply@blogger.comtag:blogger.com,1999:blog-6598831864333990375.post-66387372907981924272011-10-12T21:03:00.824-08:002011-10-12T21:03:00.824-08:00This is also an interesting post. First, allow me ...This is also an interesting post. First, allow me to answer to the first point about technology and globalization and the effects on opportunity costs. Adam Smith used to say that the division of labor (and also of knowledge) is limited by the size of the market. Globalization is nothing more than the expression of the expansion of the market or more exactly of markets. As barriers to trade have been lowered, more countries have embraced the market economy and trade, and therefore we have observed an increase in specialization resulting from the increasing of markets. Now you have markets in dog walkers, wedding planners, shoppers, etc. because of that increase of specialization where people will specialize in occupations where they have a low opportunity cost. As a result of that specialization, productivity has increased, economies of scale have emerged and therefore costs of production have decreased significantly. Innovation and technologies are largely the results of the division of labor and knowledge. So if one has to look at the effects of that increased division of labor & knowledge and globalization has done to opportunity costs of not buying goods and services from people who have a lower opportunity costs than you in producing those goods & services and doing things yourself, the only conclusion we can derive is that this opportunity cost has increased. For you to be able to produce that iPhone as opposed to China, you will have to sacrifice a significant amount of time that you could be dedicated to do something else for which your talents are more suited. <br /><br />With regard to Wheelan's Naked Economics references to the work of Akerlof, Stliglitz, and Spence. The thing that Wheelan doesn't address is that true there are asymmetric information everywhere but it's also true that people are aware of those and that's why markets have developed mechanisms to mitigate those problems. You might be less informed than the seller of the used car about the true quality of the car but that's why markets have developed such things as certification, used car warranties, CarFax, Consumer Reports, Consumer Ratings. If you go to EBay or any online seller of used products (I often buy used rare used books and often they come from foreign countries). I know that I am less informed about the condition of the book than the seller, I know that the seller might take my money and never send me the book but I do have a mechanism to minimize those risks, previous buyers' ratings and comments on their experience using that seller. If anything new technologies, the net, etc. have allowed to reduce these asymmetric information problems. <br />Akerlof was the first to really articulate the problem with asymmetric information but he clearly stated that there were market institutions to alleviate these problems and so did Kenneth Arrow when he talked about moral hazard which is another information problem. <br /><br />As a side note Wheelan belongs to that groups of economists that when market fails, the only solution is government and tends to ignore that sometimes the government solution to the problems make often those problems worse than the problem itself. Wheelan largely falls into what we call the Nirvana Fallacy, the idea that if the real world doesn't meet the perfect competitive world with perfect information, government must intervene. <br /><br />if you allow me, here's a great quote by Ronald Coase: "Until we realize that we are choosing between social arrangements, which are all more or less failures, we are not likely to make much headway"Alexandre Padillanoreply@blogger.comtag:blogger.com,1999:blog-6598831864333990375.post-46802642347626445222011-10-11T12:28:13.231-08:002011-10-11T12:28:13.231-08:00This was so good I want to delete my post and hide...This was so good I want to delete my post and hide under a rock.Khrisstianhttps://www.blogger.com/profile/14063924028677840019noreply@blogger.comtag:blogger.com,1999:blog-6598831864333990375.post-14841052623230890452011-10-09T22:12:45.421-08:002011-10-09T22:12:45.421-08:00Awesome post. Bonus points for questioning.Awesome post. Bonus points for questioning.Garrett Evridgehttps://www.blogger.com/profile/16192659777064635369noreply@blogger.com