Globalisation, Scarcity and Opportunity Cost Explained Essays

Globalisation, Scarcity and Opportunity Cost Explained Essays Globalisation, Scarcity and Opportunity Cost Explained Essay Globalisation, Scarcity and Opportunity Cost Explained Essay 1. What dangers do you see from increasing globalisation in a world economy? Globalisation refers to the integration and interdependence of the world economy and can be seen by the fact that communications, media and business spans the world, not just one given economy or even type of economy. Boyes (2011, p. 6) reports that there are now close to 40,000 transnationals companies, and increase of 300% on just 25 years ago, and that these companies make up approximately 33% of all private-sector assets. The world wide economic fact of life is that all over the world, people’s wants appear to be unlimited and exceed the resources available to satisfy those wants. Firms seem to have expanded across country boundaries in an attempt to satisfy those demands for resources and in doing so have fuelled globalisation. Economists study the what (output), the how (techniques of output) and incomes (for whom) across and between countries. In doing so, they have come to find that world production is likely to be geared towards satisfying consumer demand in the countries that have the resources and can pay – the wealthy countries. Dangers don’t just include the generation of products and services just for those that can pay, but also may include a homogenisation of markets, implying that the same products and services will be everywhere and dominate the market to the potential exclusion of local brands and firms. (MacDonald’s on every corner! and therefore consumer choice may be reduced. However, the truth is that even the most global of brands varies its products and services the world over through name changes (such as 7-Up in Shanghai – since it means ‘death by drinking’ in the local dialect) to product adaptations – where some MacDonald’s burgers in Mexico come with chilli peppers. Even the Disney company had to adapt its product in Paris, by selling alcohol amo ng other issues, and continues to do so as it opens up more parks across the globe to meet local and global demands. : The focus may be on international policies to reduce potential barriers to trade and to work towards gaining a greater equality in income distribution – but while it remains unequal (and the big question is how strong the push to create equality really is), is that it is the countries with the buying power that are likely to dictate what and how all manner of goods are produced, priced and distributed. 2. There is a saying in economics – ‘There is no such thing as a free lunch’ What does this mean? This implies that everything has a cost since everything and anything requires the allocation scarce resources. It may be the case that your lunch may well have been paid for by someone else, but you will still have allocated your time to that lunch date, and you may be required to ‘pay’ with another resource such as your advice. In addition, the opportunity cost of taking that lunch over a choice of doing something else is also measured as the value. If you can answer what else are you sacrificing to take this lunch, then that is the value. 3. ‘Students unable to buy food’ i. Explain the problem of scarcity faced by many students attending university today. What are their choices? The existence of limited resources (supply) and unlimited wants (demand) gives rise to the basic economic problem of scarcity. Scarcity implies that choices must be made regarding resources use and allocation. In the case of the students, their lack of funds or lack of time to earn potential funds (as they are spending their productive time studying rather than earning money) implies that the scarce resources in each students’ case is both time and money. The article indicates that their rather stark choice is between earning money or studying the emotive element in this article is that scarcity of money in the students’ case is so bad that it is a pay off between eating and studying. Each student, it seems needs to face a choice of spending time studying, which may result in living on or below the poverty line, or spend some time working (if they can find a job that fits around their studies), knowing that the pay off (or opportunity cost) of that work may result in reduced grades. To summarise the choice is: a) Spend time studying now – and face living on or below the poverty line now, and graduate with greater debts, or b) Allocate some time to earning money – but face a potential reduction in grades. i. What is the opportunity cost of work for many students? Opportunity cost is defined as the alternatives or other opportunities that have to be forgone to achieve a particular thing. The main concept to grasp is that choice involves sacrifice – the sacrifice of alternatives in the production, or consumption of a good/service is known as opportunity cost. In the case of the students’ situation, the opportunity cost to work is the poten tial loss in grades since longer working hours imply less time spent studying. ii. Using the PPF, explain the possibility of poorly funded tertiary education and how that is likely to affect firms in the economy. The Production Possibility Frontier illustrates the microeconomic issues of choice and opportunity cost. It is a graph illustrating a simplified version of reality – shows only the detail required to analyse the problem. It assumes that there are only two choices to allocate resources (supply) and of course assumes ‘ceteris paribus’ (all other things being equal). Tertiary education funding is illustrated in the vertical axis and all other funding for services is illustrated on the horizontal axis. If the economy/country chooses to allocate more funds to all other services in the economy, then it must sacrifice funds towards tertiary education. This sacrifice of all other funding for services is the opportunity cost of supporting one more person in tertiary education. For example in this model, if 500 units are allocated to ‘all other services’, then 300,000 students are able to be supported to participate in tertiary education. The cost of supporting 580 units is a reduction in support for 200,000 tertiary education places, since the PPF indicates that only 100,000 people can be supported in tertiary education. The opportunity cost is therefore 200,000 ‘units’. In this example, the financial support of more units of ‘all other services’, will involve a growing marginal cost since ever increasing amounts funds for tertiary education will have to be sacrificed for each additional unit of ‘all other services’ supported. It is because the opportunity costs increase that the Production Possibility curve is bowed outwards rather than being in a straight line. The only way to improve this scenario is for the economy to allocate more total funds towards services, and in effect shift the curve to the right (as illustrated by the dashed blue line). References: Boyes, W (2011) Managerial Economics Markets and the Firm, Cengage Learning, Mason, OH, USA. Sloman and Norris, (2011) Economics of Competitive Advantage GEC06410 (compiled from: Principles of Economics (2nd Ed)) University of Newcastle, Pearson Australia, Sydney. Tribe, J (1995), The Economics of Leisure and Tourism: Environments, Markets and Impacts, Butterworth-Heinemann Ltd, Oxford, UK. Units/Number of people funded for tertiary education (in 1000s) Units/Number of all other services in the economy (in 1000s) 700 600 500 400 300 200 100 0 0 100 200 300 400 500 600 700