How to calculate opportunity cost. opportunity cost
Under production costs it is customary to understand a group of expenses, cash expenditures necessary in order to create a product. That is, for enterprises (firms, companies), they act as payment for acquired production factors. These costs cover the payment of materials necessary to ensure production process(raw materials, electricity, fuel), employees, depreciation, and expenses to ensure production management. When goods are sold, entrepreneurs receive revenue. Some of the funds received are used to compensate for production costs (to produce the required amount of goods), the second part is to ensure profit, main goal, for the sake of which any production is started. This means the production will be less than the cost of the goods for the amount of profit.
What is opportunity cost?
Most of the costs of production - from the use of resources that ensure this very production. When resources are applied in one place, they cannot be applied elsewhere, because they are rare and limited. For example, the money that was spent to buy a blast furnace to produce pig iron cannot be used to make soda. Result: if any resource is decided to be used in some way, then it cannot be spent in another way.
Given this particular circumstance, with any decision to start production, it becomes necessary to refuse to use a certain amount of resources in order to use this very resource in the manufacture of other products. Thus, opportunity costs are formed.
opportunity cost
The amount of one good that must be sacrificed to increase the production of another good is called opportunity cost, or the cost of missed opportunities.
For example, if the production of an additional unit of good X requires the abandonment of two units of good Y, then these two units of good Y constitute the opportunity cost of good X.
Task 1. Estimation of the opportunity cost on the example of a transport problem.
Suppose there are two ways to get from city A to city B: by plane and by train. The cost of a plane ticket is 100 USD, the cost of a train ticket is 30 USD. Travel time: by plane - 2 hours, by train - 15 hours. What type of transport is more preferable for a person whose average income is 5 c.u. in hour?
Solution: Estimate the opportunity costs of travel by plane and train and compare them.
Plane: 100(ticket) + 5*2(lost income) = $100
Train: 30(ticket) + 5*15(lost income) = $125
Answer: ceteris paribus, an airplane is preferable.
The nature of the change in opportunity costs.
You probably already noticed that the production possibilities curve has a convex shape. This is due to the fact that by changing the structure of production (moving from point C to point D), we consistently involve in production an increasing amount of inefficient resources. That is, to produce a slightly larger number of missiles, we have to give up a large amount of potentially produced grain. This is due to the fact that the release of each additional rocket is "paid for" by ever-increasing opportunity costs (or in other words, losses from not producing grain).
The increase in opportunity cost is universal and is sometimes called the law of increasing opportunity cost. This increase predetermines the convex nature of the production possibilities curve. If all resources could be used with equal efficiency to produce both goods, then the production possibilities curve would look like a straight line.
Pareto economic efficiency
The production of products corresponding to any of the points on the production possibilities curve is efficiently functioning.
The concept of "Efficiency" was first developed and applied to economic processes Italian economist and sociologist Vilfredo Pareto. The criterion proposed by Pareto made it possible to compare the results of various economic situations.
Pareto economic efficiency, this is a state of the market in which no one can improve his position without simultaneously worsening the position of at least one of the participants. Otherwise, such a situation is called Pareto optimal state.
Pareto-optimal state (Pareto optimum). When all market participants, each striving for their own benefit, reach a mutual balance of interests and benefits, the total satisfaction of all members of society reaches its maximum.
The production possibilities curve model illustrates four important points:
Limited resources - this is evidenced by the existence of an area of unattainable values (point G)
The need for choice - society is forced to determine which combination of goods X and Y best satisfies its interests
The presence of opportunity costs - this is evidenced by the decreasing nature of the curve, since in order to produce an additional unit of one product, it is necessary to abandon the release of any amount of another product.
The increase in opportunity costs is the convex nature of the production possibilities curve.
And yet: can society overcome the limited resources and go beyond the frontier of its production possibilities? Yes, but only if:
Implementation of technological and technical innovations
Increasing the volume of production resources (development of new lands, involvement in production of previously unemployed)
Using the advantages of international economic relations (import of raw materials)
All of the above makes it possible to overcome the limited resources and shift the CPV upward - to the right, but cannot change the output character of the curve.
25. The concept of opportunity cost. Law of Substitution .
Alternativeprice(value) - in economics - the best of the alternatives missed as a result of choosing a particular option. Sometimes the opportunity cost is called economic value.
Opportunity cost is not the subject of accounting, it is a concept that can be guided by when making decisions.
It also has names - opportunity costs, hidden costs, external costs and in production can be defined as the amount of another product that has to be sacrificed (reduced in its production) to increase the production of this product.
The opportunity cost can be expressed both in kind (in goods, the production or consumption of which had to be abandoned), and in the monetary equivalent of these alternatives. Also, the opportunity cost can be expressed in hours of time (lost time in terms of its alternative use).
If a person has the opportunity to purchase two goods (goods) A and B, which are equally interesting to him (bring the same pleasure, utility) and this individual purchases one of the goods - A for N units of money, while the second product costs M (so N Opportunity cost can also be applied to human activities. So economics defines the opportunity cost of going to a nightclub as the amount of money that an individual spent on this action and the amount of money that he will have if he does not go to the club and works at that time. For example, the cost of entering the club is 500 rubles, food in the club (dinner) costs 1500 rubles, drinks cost 1000 rubles. Therefore, going to a club will cost a person 3,000 rubles, and if he didn’t go, he would save 3,000 rubles, but he would have to have dinner anyway, so he spends 500 rubles on dinner. (let dinner at home cost that much), thus, the individual saves 2500 rubles. Plus, he spent 10 hours in the club, and an hour of his work costs 250 rubles, and if he had spent this time working, he would have earned an additional 2,500 rubles. 1. The law of substitution, which states that with full use of resources and unchanged technology, an increase in the production of one product leads to a reduction in another. Moving along the production possibilities curve, indeed, we see that with an increase in oil production, the output of guns decreases, and vice versa. The following examples are often given to illustrate the operation of the law of substitution. 1. In the USSR on the eve of the Great Patriotic War (1941-1945) there was full employment, all labor resources were fully used, there was no unemployment. When the war began, it was possible to increase the production of military products only by reducing the production of civilian products. IN THE USA before the war (1939), labor resources were underused, unemployment reached 17.2%. When World War II began, the US was able to increase production and military, and civilian products. By 1944, unemployment had fallen to 1.2%. 2. If the economy is at the point N,
this means that the available resources are not fully utilized: there is an opportunity to increase the production of both guns and oil. Dot N indicates underproduction and inefficient use of resources. 3. Point M at data resources and available technology for production is unattainable. But this does not mean at all that production possibilities cannot increase. There are two ways to expand production capabilities: extensive - carried out by involving additional resources (increase in the number of employees, involvement in the processing of new reserves of natural raw materials, growth in investment without changing the technical basis of production); intense - achieved through the best use of available resources (acceleration of scientific and technological progress and, on this basis, an increase in the productivity of labor and equipment, an improvement in the organization of production, etc.). 4. Any production is efficient, if it ensures the full use of resources, i.e. if an increase in the production of one product leads to a decrease in the production of another product. Therefore, any point lying on the
the production possibilities curve is efficient. Assume that the firm has a certain machine park and a certain number of employees and produces two products. If the machine park is fully used, all workers are loaded, then in order to increase the production of one product, it will be necessary to reduce the production of another. If it is possible to increase the production of one product without reducing the production of another, this means that the available resources are underused, i.e. production is inefficient. 5. Since an increase in the production of one product leads to a reduction in the production of another, the production costs of one product can be expressed in the amount of another product, the production of which has to be abandoned in connection with the production of the first. Thus, the increase in oil production from zero to 2 million tons "cost" 3 thousand guns, the production of which had to be abandoned. It can be said that additional 2 million tons of oil cost 3 thousand guns. In economics, such a cost or such cost of production is called opportunity or imputed. 26.
The concept of a production function, its main parameters
. Production is understood as any activity for the use of natural, material, technical and intellectual resources to obtain both tangible and intangible benefits. With the development of human society, the nature of production is changing. In the early stages of human development, natural, natural, "naturally occurring" elements of the productive forces dominated. And man himself at that time was more a product of nature. Production during this period was called natural. With the development of the means of production and of man himself, the “historically created” material and technical elements of the productive forces begin to predominate. This is the age of capital. At present, knowledge, technology, and the intellectual resources of the person himself are of decisive importance. Our era is the era of informatization, the era of the dominance of scientific and technical elements of the productive forces. Possession of knowledge, new technologies is crucial for production. In many developed countries, the task of universal informatization of society is set. The worldwide computer network Internet is developing at a tremendous pace. Traditionally, the role of the general theory of production is played by the theory of material production, understood as the process of transforming production resources into a product. The main production resources are labor (L) and capital (K). The modes of production or existing production technologies determine how much output is produced with given amounts of labor and capital. Mathematically existing technologies are expressed through a production function. If we denote the volume of output by Y, then the production function can be written: This expression means that the volume of output is a function of the amount of capital and the amount of labor. The production function describes the set of currently existing technologies. If a better technology is invented, then with the same expenditure of labor and capital, output increases. Consequently, changes in technology also change the production function. Methodologically, the theory of production is largely symmetrical to the theory of consumption. However, if in the theory of consumption the main categories are measured only subjectively or are not yet subject to measurement at all, then the main categories of the theory of production have an objective basis and can be measured in certain physical or value units. Despite the fact that the concept of “production” may seem very broad, vague and even vague, since in real life “production” means an enterprise, a construction site, an agricultural farm, a transport enterprise, and a very large organization such as the folk industry. economy, nevertheless, economic and mathematical modeling highlights something in common, inherent in all these objects. This common is the process of converting primary resources (production factors) into the final results of the process. In connection with the main and initial concept, the description of an economic object becomes a “technological method”, which is usually represented as a cost-output vector v, including a listing of the volumes of resources expended (vector x) and information about the results of their transformation into final products or other characteristics (profit, profitability, etc.) (vector y): The dimension of the vectors x and y, as well as the methods of their measurement (in natural or cost units) significantly depend on the problem under study, on the levels at which certain tasks of economic planning and management are posed. The set of vectors - technological methods that can serve as a description (from a reasonable point of view of the researcher with accuracy) of the production process that is actually feasible at some object, is called the technological set V of this object. For definiteness, we will assume that the dimension of the input vector x is equal to N, and the dimension of the output vector y, respectively, M. Thus, the technological method v is a vector of dimensions (M + N), and the technological set . Among all the technological methods implemented at the facility, a special place is occupied by methods that compare favorably with all others in that they require either lower costs for the same output, or correspond to a larger output for the same costs. Those of them that occupy in a certain sense the limiting position in the set V are of particular interest, since they are a description of a feasible and marginally profitable real production process. Let's say that the vector if the following conditions are met: 1) 2) and at least one of the following occurs: a) there is a number i0 such that ; b) there is a number j0 such that . A technological method is called effective if it belongs to the technological set V and there is no other vector that would be preferable. The above definition means that those methods are considered effective that cannot be improved in any cost component, in any position of the product, without ceasing to be acceptable. The set of all technologically efficient methods will be denoted by V*. It is a subset of the technological set V or coincides with it. In essence, the task of planning the economic activity of a production facility can be interpreted as the task of choosing an effective technological method that best suits some external conditions. When solving such a choice problem, the idea of the very nature of the technological set V, as well as its effective subset V*, turns out to be quite significant. In a number of cases, it turns out to be possible to admit, within the framework of fixed production, the possibility of interchangeability of certain resources (various types of fuel; machines and workers, etc.). At the same time, the mathematical analysis of such productions is based on the premise of the continual nature of the set V, and therefore on the fundamental possibility of representing variants of mutual replacement using continuous and even differentiable functions defined on V. This approach has received its greatest development in the theory of production functions. Using the concept of an effective technological set, a production function (PF) can be defined as a mapping: y = f(x) , where . This mapping is, generally speaking, multi-valued, i.e. the set f(x) contains more than one point. However, for many realistic situations, the production functions turn out to be single-valued and even, as mentioned above, differentiable. In the simplest case, the production function is a scalar function of N arguments: Here, the value of y, as a rule, has a value character, expressing the volume of production in monetary terms. The arguments are the volumes of resources expended in the implementation of the corresponding efficient technological method. Thus, the above relation describes the boundary of the technological set V, since for a given cost vector (x1,…,xN) it is impossible to produce products in quantities greater than y, and the production of products in quantities less than the specified one corresponds to an inefficient technological method. The expression for the production function can be used to evaluate the effectiveness of the management method adopted at a given enterprise. Indeed, for a given set of resources, one can determine the actual output and compare it with that calculated from the production function. The resulting difference provides useful material for evaluating efficiency in absolute and relative terms. The production function is a very useful apparatus for planning calculations, and therefore a statistical approach has now been developed to construct production functions for specific economic units. In this case, a certain standard set of algebraic expressions is usually used, the parameters of which are found using the methods of mathematical statistics. This approach means, in essence, estimating the production function based on the implicit assumption that the observed production processes are efficient. Among the various types of production functions, linear functions of the form are most often used: since for them the problem of estimating coefficients from statistical data is easily solved, as well as power functions: for which the problem of finding the parameters is reduced to estimating the linear form by passing to logarithms. Under the assumption that the production function is differentiable at each point in the set X of possible combinations of input resources, it is useful to consider some quantities related to the PF. In particular, the differential: represents a change in the cost of output when moving from the costs of a set of resources x = (x1,…,xN) to a set x + dx = (x1+dx1,…,xN+dxN) provided that the efficiency property of the corresponding technological methods is preserved. Then the value of the partial derivative: can be interpreted as the marginal (differential) resource return or, in other words, the marginal productivity coefficient, which shows how much the output will increase due to the increase in the cost of the resource with the number j by a “small” unit. The value of the marginal productivity of a resource can be interpreted as the upper limit of the price pj that a production facility can pay for an additional unit of the jth resource in order not to be at a loss after its acquisition and use. In fact, the expected increase in production in this case will be: and hence the ratio will generate additional profit. In the short run, when one resource is treated as fixed and the other as variable, most production functions have the property of diminishing marginal product. The marginal product of a variable resource is the increase in the total product due to the increase in the use of this variable resource per unit. The marginal product of labor can be written as: MPL = F(K,L+1) – F(K,L), where MPL is the marginal product of labor. The marginal product of capital can also be written as the difference: MPK = F(K+1,L) – F(K,L), Where MPK is the marginal product of capital. A characteristic of a production facility is also the value of the average resource return (productivity of the production factor): having a clear economic meaning of the quantity of output per unit of resource used (factor of production). The reciprocal of the resource return usually called resource intensity, since it expresses the amount of resource j required to produce one unit of output in terms of value. Very common and understandable are such terms as capital intensity, material intensity, energy intensity, labor intensity, the growth of which is usually associated with a deterioration in the state of the economy, and their decline is regarded as a favorable result. The quotient of dividing the differential productivity by the average: is called the coefficient of elasticity of production by the production factor j and gives an expression for the relative increase in production (in percent) with a relative increase in the cost of the factor by 1%. If Ej ≤ 0, then there is an absolute decrease in output with an increase in the consumption of factor j; this situation may occur when technologically unsuitable products or modes are used. For example, excessive consumption of fuel will lead to an excessive increase in temperature and the chemical reaction necessary for the production of the product will not take place. If 0< Ej ≤ 1, то каждая последующая
дополнительная единица затрачиваемого
ресурса вызывает меньший дополнительный
прирост продукции, чем предыдущая. If Ej > 1, then the incremental (differential) productivity exceeds the average productivity. Thus, an additional unit of resource increases not only the volume of output, but also the average resource return characteristic. This is how the process of increasing the return on assets occurs when highly progressive, efficient machines and devices are put into operation. For a linear production function, the coefficient aj is numerically equal to the value of the differential productivity of the j-th factor, and for a power-law function, the exponent αj has the meaning of the elasticity coefficient for the j-th resource. production function characterizes the relationship between the amount of resources used and the results of production. Our task is to single out a production function (PF) from a variety of models as a special kind of economic and statistical models. For this purpose, consider the content of any of the signs: A-E(p. 5.2) : A. Modeling object. The direct object of modeling with respect to PF are the processes of production in actually functioning economic systems for a certain period of time at an enterprise (firm), in a region, or in a region. national economy generally. Accordingly, relative to the level of the modeled system, production functions are divided into macroeconomic, regional, sectoral, and production functions of the enterprise. B. System description of the object. In the theory of production functions, the production process is analyzed from the point of view of the transformation of resources into a product (product). The inputs are resource flows of various types, fully or partially used in production, the output is products ready for sale. Resources (factors) functioning in the system, technology and conditions of production organization determine the potential possibilities and the state of the process (system). B. Entire simulations. PF is built to solve certain economic problems that relate to analysis, forecasting and planning (in the narrow sense of the word). PFs are used both independently and as part of more general economic and mathematical models. The purpose of constructing the PF can be characterized as an analysis of the factors regarding their significant impact on the volume of output. D. Principles of modeling. The most common concept of the WF is based on principles that express the role of the axiomatic provisions of the theory of production functions: 1) the volume of output produced by a given production system for a certain period is determined by the volume of means and objects of work and living work that take part in the production process during this period; 2) the relationship between the volume of output and the volume of means of work, objects of work and living work is natural and relatively stable for a given production system; 3) in some cases, an additional hypothesis is taken, which, within certain limits, any independent change in the arguments of the WF allows a real interpretation. D. Simulation Apparatus. The main "material" for building a production function is dependencies y = f(x1, ..., xn), where y is the output indicator (volume), x1, ..., xn are the volumes of production resources (factors) (the number of PF factors, as a rule, does not exceed 10). The function f ( ) is considered to be defined in a rather wide area of the n-dimensional Euclidean space ( Rn) and such that is calculated in the domain of its definition. The latter means that the system analyst must have at his disposal an algorithm that would allow the calculation of the value of f ( ·
) at any point where it is defined. As a rule, the PF y = f (x1, ..., xn) is constructed by selecting the most adequate functions from a certain parametric class F = {y = f(x 1,
..., xn, a 1,
..., ak)}
= f(x, a), where a= (a 1,
..., ak) - parameter vector. So, the direct apparatus of modeling within the boundaries of this concept of PF are parametric classes of functions that depend on interchangeable ones. As a rule, the dependence of the function f(·
) on changeable and parameters is given explicitly (or mode) whether in the form of functional differential or integral equations. E. Model Identification and Interpretation. changeable y,x 1, ..., xn are identified with indicators of output volumes and the main factors (resources) that take part in production. The allowance is the possibility of specification of parameters a 1, …, ak PF based on statistical (or expert) data on resources and output for previous periods, as well as planned and indirect data. The method for estimating the parameters is not uniquely defined; it depends on the goals of constructing the PF, the features of the simulated process, and the initial data. The interpretation of the parameters, in turn, depends on the method of their estimation. Often, for the interpretation of the parameters of vio-kremlin, their expressions are used through the value of the indicators, as well as the value of partial derivatives. 27.
The essence of the law of diminishing returns of the factor of production
. Law of diminishing returns The rate at which costs increase depends on the extent to which production (or sale) is subject to the law of diminishing returns. The law of diminishing marginal returns states that, starting from a certain point, the successive addition of units of a variable resource (for example, labor) to an unchanged resource (for example, capital) gives a decreasing additional or marginal product per unit of variable resource. To understand this law, one must know that there is a theory of production and costs, which states that for each individual period there is always a maximum amount of output that can be achieved with a given input of production factors. Factors of production include labor, capital invested in equipment, equipment, raw materials. As a rule, production factors are generalized into 2 groups - labor (L-labour) and capital (K), and then the production function describing the dependence of output (Q) on production factors looks like in the following way: Q = f(L,K) Factors of production may change simultaneously, or one of them changes while the other remains constant. To illustrate the law of diminishing marginal returns, assume that capital is constant and labor costs vary. To illustrate the law of diminishing returns, let's get acquainted with such definitions as the marginal product of labor, the average product of labor. marginal product of labor(MPL - marginal product labor) (or marginal labor productivity) - the additional volume of production obtained by increasing labor costs (number, people / hour) by one unit. MPL = ∆Q/∆L L - change in labor costs; ΔQ - increase in production volume. The average product of labor in an economy is often referred to as labor productivity, because this indicator for the long-term period for the industry can show the real standard of living of the population of the country. The average product of labor (APL - average product labor) is the volume of output (Q) per unit of labor (L): APL=Q/L I will give an example of the dependence of product sales on the number of employees in a pharmacy (the variable factor is labor). In accordance with the law of diminishing returns, if the number of employees in a given pharmacy will increase, then the growth in sales per employee will be slower as more people are attracted. opportunity cost- cost of lost profits or costs alternative possibilities- an economic term denoting the lost profit (in a particular case - profit, income) as a result of choosing one of the alternative options for using resources and, thereby, refusing other opportunities. The value of the cost of lost profits is related to the utility of the most valuable of the alternatives, which turned out to be unrealized. Opportunity costs are characterized by inseparability from decision-making (actions), subjectivity, expectation at the time of the action. Opportunity costs are not expenses in the accounting sense, they are just an economic construct for accounting for lost alternatives. A simple example is given by the well-known anecdote about a tailor who dreamed of becoming an English king and at the same time "would be a little richer, because he would sew a little more." However, since it is impossible to be a king and a tailor at the same time, the profits from the tailoring business will be lost. They should be considered the cost of a missed opportunity when ascending the throne. If you remain a tailor, then the income from the royal position will be lost, which will be the cost of a missed opportunity in this case. Explicit costs- these are opportunity costs that take the form of direct (cash) payments for factors of production. These are such as: payment of wages, interest to the bank, fees to managers, payment to providers of financial and other services, payment transport costs and much more. But the costs are not limited to the explicit costs incurred by the enterprise. There are also implicit (implicit) costs. These include the opportunity costs of resources directly from the owners of the enterprise. They are not enshrined in contracts and therefore remain under-received in material form. So, for example, steel used to make weapons cannot be used to make cars. Businesses usually do not record implicit costs in financial statements but that doesn't make them smaller. The idea of F. Wieser's opportunity costs The idea of opportunity costs belongs to Friedrich Wieser, who designated it in 1879 as the idea of using limited resources and initiated a critique of the cost concept contained in the labor theory of value. The essence of F. Wieser's idea of opportunity costs is that the real cost of any produced good is the lost utility of other goods that could be produced with the help of resources used for already released goods. In this sense, the cost of producing any good is the potential loss of other, unreleased useful goods. F. Vizer. Determined the value of resource costs in terms of the maximum possible return on production. If too much is produced in one direction, less can be produced in another, and this will be felt more strongly than the gain from overproduction. Satisfying needs with an increasing output of some commodities and refusing an additional quantity of other commodities, one has to pay for the choice made a correspondingly increasing price, expressed in terms of these non-produced commodities. This is the meaning of the opportunity cost, known as Wieser's law. Nobel laureate in the field of modern economics V.V. Leontiev proposed an interpretation of Wieser's law in terms of the relative economic efficiency allocation of limited resources. It is embodied in his scientific and practical idea, which is the basis of the economic model "costs - output". Leontiev notes that the size and distribution of any mass of products, which seems to be the most effective for achieving a given economic purpose, may not be sufficient from the point of view of another goal. The question of the economic goal, of what, how and for whom to produce, acquires practical meaning in terms of the rights and responsibility for choosing one or another alternative, which determined the proportions and directions for the distribution of limited resources. The right to choose a priority among alternatives is at the same time the obligation to compensate for the opportunity costs, to pay that increasing price for the diversion of resources to some priorities and the rejection of others. The opportunity costs of wheat and oil production in the countries under consideration are given in Table. 3.7. Table 3.7.Opportunity cost calculation Issue volume Wheat, t Oil, kg Time spent Product BUT T 1 A T 2 A Product AT T 1 B T 2 B FROM 1
A < С
2
A or T 1 A T 2 A T 1 B T 2 B T 1 A T 1 B T 2 A T 2 B 1) either the establishment of a new equilibrium of the exchange rate; 2) either by adjusting all price levels in one or both countries. Indeed, it is not difficult to establish a relationship between the exchange coefficient in physical terms ( t) and the concept of the exchange rate. Consider, for example, the trade exchange between Russia and Germany, assuming that the exchange ratios are established at equilibrium levels, expressed as a ratio to 1 ton of butter: for wine t = 100 l/t; for cars t= 1 car/t; for refrigerators t= 6 cold/t. The exchange rate of money, or, in other words, exchange rate, must equalize the prices of all goods for the two countries (since the trade exchange is free). Since the established terms of trade (0 ensure the equality of relative prices (for example, wine per 1 ton of oil), it is sufficient to determine the monetary exchange rate for only one of the products, for example oil: for Germany 1 ton of oil = 10,000 DEM; for Russia 1 ton of oil = 40,000 RUR. Whence it follows that 10,000 DEM = 40,000 RUR. So the exchange rate is 4 RUR for 1 DEM. National prices calculated in this way (with obligatory consideration of exchange coefficients t) will adequately reflect the state of equilibrium in international trade. Naturally, all these considerations are suitable only for free trade exchange, when everyone can buy a given product wherever he wants (transport costs are not taken into account). Thus, the fact that in reality trade is carried out by means of money (national currency) does not in the least detract from the importance of the law of comparative advantage discovered by D. Ricardo. 1
A country will not have a comparative advantage with respect to a partner country only in the exceptional (and therefore impossible) case when the opportunity costs of each product produced in these countries are equal. 1
Recall that the constancy of opportunity costs is illustrated by the linear nature of the above graphical models of international trade. 1
Readers are invited to consider for themselves the opportunity costs of production in the country natural gas (1 / 3 ; 1 / 2 ; 1). 3.3 Heckscher-Ohlin theory 1
Developing the theory of comparative advantage, David Ricardo proceeded from the fact that differences between countries in production costs are determined mainly by differences in natural and geographical conditions. This principle is generally valid, but does not exhaust all the features of international trade. Not only oil and oranges are traded on the world market. An increasing role in foreign trade is occupied, as noted above, by manufacturing goods and services. In the production and trade of these products, in shaping the structure of world trade, the role of not so much natural as other prerequisites is becoming increasingly significant. As a result of the analysis of these prerequisites, the new concept(theory) of foreign trade, which explains the presence of comparative advantages in different countries in the conditions of application in these countries of almost the same technology. This concept was proposed by the Swedish economists E. Heckscher and B. Olin, who proved that the differences in comparative costs between countries are explained, firstly, by the fact that factors are used in different ratios in the production of various goods, and, secondly, by the fact that the provision of countries with factors of production is not the same. At the same time, in the interpretation of Heckscher-Ohlin, the country will have advantages in those industries where the factors that it has in abundance are intensively used. Thus, a country that has, for example, an abundance of cheap labor force, will specialize in trade in products that require significant labor costs (textiles, clothing, assembly of products from components, etc.). If a country has an excess of capital, then it is profitable for it to export capital-intensive products (machinery, equipment, etc.). Before considering the main provisions of the Heckscher-Ohlin theory, we define at a formalized level the concepts of capital intensity and labor intensity of manufactured products, using the data in Table 1 for this. 3.9. Table 3.9.Resource costs Manufactured products Cost per unit of output labor ( L) capital ( To) Fabric, m 2 labor than in the manufacture of steel (6 / 2 > 8 / 4): Price per unit of labor / Price per unit of capital Salary / Interest rate. According to the economic criterion, Russia is labor-surplus relative to, for example, England, if, in its isolated state of equilibrium, labor is relatively cheaper in Russia than in England (i.e., if the ratio " wage/ interest rate" in Russia is lower (less) than in England). What is the main difference between the two criteria for factor abundance? Physical the criterion is based solely on the supply of factors of production and completely ignores the influence of demand; economic- takes into account both the supply of factors and the demand for them: after all, the equilibrium prices for factors of production, like commodity prices, are determined by both supply and demand. Generally speaking, the conditions of demand in some circumstances may "outweigh" the conditions of supply: in this case, the considered criteria may give conflicting classification results. For example, suppose that the Russian labor/capital ratio is higher than in England, but Russian consumers have a much stronger preference than British consumers for the consumption of labor-intensive goods. A strong Russian addiction to the consumption of labor-intensive goods determines a high degree elasticity of demand for Russian labor and correspondingly high level its prices (wages). Thus, Russian labor under isolated autarkic conditions may be relatively more expensive than British labor, even if Russia, by a physical criterion that takes into account only the supply of labor, is labor surplus relative to England. In the standard Heckscher-Ohlin model, the contradictions between physical and economic criteria are eliminated by the assumption that tastes and preferences in different countries are largely similar. Thus, in the standard Heckscher-Ohlin model, one can judge factor abundance based on any criterion. It should be noted that factor abundance is also a relative concept. If, for example, it is established that Russia is labor-abundant relative to England (by any criterion), it must also be true that England is capital-abundant relative to Russia. Let us now turn to the consideration of the Heckscher-Ohlin model itself. The essence of the standard Heckscher-Ohlin model can be summarized in four theorems. These are: the Heckscher-Ohlin theorem; factor price equalization theorem; the Stolper-Samuelson theorem; Rybchinsky's theorem. Let us formulate the above theorems. The Heckscher-Ohlin theorem. A country has a comparative advantage in a good that makes heavy use of the country's excess factor. For example, Russia (a labor-surplus country) will have a comparative advantage in the production of a labor-intensive good, which it will export (in our country). conditional example- the cloth). Similarly, England (a capital-surplus country) will have a comparative advantage in the production of steel (a capital-intensive commodity), which it will export abroad, exchanging (for the given example) for cloth. Therefore, the Heckscher-Ohlin theorem is sometimes formulated as follows: countries tend to export goods for the manufacture of which abundant factors of production are used, and vice versa, to import goods for the production of which relatively rare scarce factors are needed. Or quite briefly: countries export products of the use of excess factors and import products of the use of factors that are scarce for them. Thus, the Heckscher-Ohlin theorem goes one step further than the classical theory of comparative advantage: it not only recognizes that trade is based on comparative advantage, but also deduces the cause of comparative advantage - the difference in the endowment of countries with factors of production. The difference in the relative prices of goods in different countries, and hence the international trade between them, is explained by their different endowment with factors of production. The factor price equalization theorem. Free trade equalizes the price of the corresponding factor of production (factor cost) in different countries, thus replacing external factor mobility. This theorem is an outstanding result because it states that even in the absence of factor movement between countries, free trade leads to an international state of equilibrium in which workers receive practically the same wages and owners of capital receive the same interest rate in different countries of the world. Stolper-Samuelson theorem. An increase in the relative price of a commodity raises the real value of a factor intensively used in its production and reduces the real value of another factor. For example, an increase in the relative price of cloth (a labor-intensive good) raises real wages and lowers real wages. bank interest for capital. Rybchinsky's theorem. Given the coefficients (conditions) of production and fully used volumes of factors, the expansion of the volume of one of the factors increases the output of a product that uses the "extended" factor intensively, and reduces the output of another product. For example, for the example under consideration, the expansion of volumes labor resources increase the output of cloth (a labor-intensive commodity) and decrease the output of steel. Let us illustrate the theorems formulated above. 1
Heckscher Eli(1879-1952) - Swedish economist, actively involved in the problems of international trade. Olin Bertil
(1899-1979) - Swedish economist, student of Heckscher. Laureate Nobel Prize 1977 in Economics for services to the development of the theory of international trade. 3.3.1. Rybchinsky's theorem Let's start with Rybchinsky's theorem, which is the basis of the Heckscher-Ohlin model. Suppose that 1 m 2 of fabric requires 4 units. labor and 1 unit. capital, and 1 ton of steel requires 2 units for its production. labor and 3 units. capital (Table ZLO). Table 3.1 0. Resource costs Manufactured products Cost per unit of output labor ( L) capital ( To) Textile at, m 2 Steel X, t Thus, fabric is more labor intensive than steel because 4/1 > 2/3: Rice. 3.8. National production possibilities curve If the economic system had an unlimited supply of capital, it could produce steel and cloth within the limits imposed by the labor constraint. CD (2x + 4y ≤ 900), which, by the way, is similar to the production possibility frontier in the Ricardian models discussed above, illustrating the comparative advantages (opportunity costs) of production. Similarly, in the case of an unlimited supply of labor, the economic system under consideration could produce products within the limits determined by the capital constraint AB(Z X + at≤ 600). When the supply of labor and capital is constrained, both constraints define an area of feasible solutions due to the broken line SEV. On fig. 3.8 the capital restriction line runs in relation to the x-axis "steeper" than the labor restriction line, which is explained by the capital intensity of steel. To understand this, let's imagine that the economic system is at the point of 100% (full) involvement of factors ( E), and give the economy the opportunity to increase the volume of steel output (we move to the point AT). Capital in this case will remain fully employed, while the number of unemployed will begin to increase. This means that steel requires more capital per unit of labor input (per worker) than fabric, hence steel is a more capital-intensive product than fabric. In order to calculate how much B can be produced instead of the available 66A, it is enough to recall that the internal opportunity cost of producing one good A in Russia is 0.5 of good B. That is, instead of 66A, Russia can produce 33. As a result, the leftmost point of the CPV has a coordinate of 233 (= 200 + 33). The CPV has a fracture. Note that the resulting segment of the CPV is parallel to the original CPV, since Russia ended trade at this segment and returned to the choice between producing two goods at domestic opportunity cost. Now let's build the US CPV. The USA, starting trading at point 200B, according to the proportion of exchange 1A=1.5B (which is equivalent to the proportion 1B=A), wants to exchange 200B for 133 goods A (= 200 *). Russia has the capacity to supply 133 goods A. In order to trade effectively with another country, a given economy does not need to have a higher productivity in the exchanged good, but it is sufficient to produce it at a lower opportunity cost. This has a huge practical value. For example, the USA is more productive than Ecuador and in production software and in the cultivation of bananas. But this does not mean that the US will not trade any goods with Ecuador. Important Because the opportunity cost of bananas is lower in Ecuador, he will specialize in producing and trading bananas. The US, by contrast, has lower opportunity costs of producing software, and will trade it. Thus, each country trades in the product in the production of which resources are used in the most optimal way. Attention Opportunity costs are divided into 2 types: external and internal. External costs are associated with the acquisition of a resource and correspond to the benefit that can be obtained by using the same costs of another alternative resource. Internal costs are due to the use of not attracted, but own resources, which means that the time costs of the company's resources are equal to the benefits that can be obtained from the alternative use of their resources. Sweden has a comparative advantage in cheese and Portugal in wine. Consequently, when establishing trade relations between these two countries, Sweden will specialize in cheese, and Portugal in wine. Sweden exchanges 3 tons of cheese for 1 ton of wine from Portugal. Solution: Total costs TC = fixed costs FC+ variable costs VC= (average fixed costs AFC+ average variable costs AVC) ∙ output Q. Given: AFC = 20 den. units / piece, AVC=100 den. units / piece, Q= 2000 pieces TS = (20 +100) ∙ 2000 = 240000 den. units Answer: b) 240 thousand den. units AT given period the wages of employees amounted to 400 thousand rubles, the cost of raw materials and materials - 500 thousand rubles, the cost of used equipment - 300 thousand rubles. The salary of the owner of the company as an employee in a competitive enterprise would be 200 thousand rubles. Define: accounting costs; economic costs, accounting profit and economic profit enterprises. When the incremental cost of producing each additional unit of output is less than the average cost of the units already produced, the production of that next unit will lower the average total cost. If the cost of the next additional unit is higher than the average cost, its production will increase the average total cost. The above applies to short period. In practice Russian enterprises and in statistics, the concept of "cost" is used, which is understood as the monetary expression of the current costs of production and sales of products. The composition of the costs included in the cost price includes the cost of materials, overheads, wages, depreciation, etc. Typical examination (test) tasks for students of all specialties in the discipline "Economics ( Economic theory)» 2011-2012 academic year. year Below are typical tasks (total– 8) and examples of solving some of them. Italicized correct design solutions. Figure 1 Solution: In general terms, opportunity cost is the amount of one good (for example, good A) that must be sacrificed in order to obtain another good (for example, good B). Accordingly, the calculation of the opportunity cost of producing one additional unit of product B is carried out according to the formula: Losses in the production of product A / gain in the production of product B. This means that instead of producing 1 ton of cheese, it can produce 0.2 tons of wine. At what proportion of the exchange of cheese for wine will Sweden enter into trade relations? The answer sounds like this: Sweden will change cheese for wine when for 1 ton of cheese it can get MORE than 0.2 tons of wine. If it receives exactly 0.2 tons of wine from trade, then Sweden does not care whether to produce wine on its own or to receive it from Portugal. If Sweden receives less than 0.2 tons of wine from trade, then it will be profitable for Sweden to produce it on its own, and trade will not take place. Similarly, Portugal will change wine for cheese when for 1 ton of wine he gets MORE than 0.625 tons of cheese. This means that Portugal wants to get LESS for 1 ton of cheese than 1.6 tons of wine. In a narrower sense, sunk costs include the costs of resources that cannot be used in alternative ways, such as the purchase of specialized equipment. This category of expenses does not apply to economic costs and does not affect the current state of the firm. Costs and price If the organization's average cost equals the market price, then the firm earns zero profit.
If favorable market conditions increase the price, then the organization makes a profit. If the price corresponds to the minimum average cost, then the question arises about the feasibility of production. If the price does not even cover the minimum variable costs, then the losses from the liquidation of the company will be less than from its functioning. International distribution of labor (MRT) At the heart of the world economy is MRI - the specialization of countries in the manufacture of certain types of goods.
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If there is free trade between these countries, the equilibrium price, for example, for wheat will be set in the range: 1.0< t <
5.0. Let's assume it will be equal to t= 4.0. This means that the US and Canada will export wheat to England, and England, in turn, will export oil to Canada and the US. Trade in several goods The considered model of comparative advantages can be extended also for an arbitrary number of goods. To understand how this can be done, we modify the formula for determining comparative advantages for the simplified basic model "two countries - two goods" (Table 3.8). Table 3.8.Time spent per unit of output
Let us assume that the opportunity cost FROM for the production of goods BUT in country 1 is lower than in country 2, i.e.:
or, which is the same:
It follows that the opportunity cost of producing a good for a particular country can be calculated not only in terms of the time spent on the production of another good in the same country T 1 A/T 1 B
but also through the amount of time spent on the production of goods of the same name abroad, i.e. T 1 A/ T 2 A Thus the opportunity cost can be calculated over a completely arbitrary quantity of goods. Further, it is enough to arrange all the goods of the analyzed country in order of increasing opportunity costs of their production in this country in order to make (taking into account the ratio of wage levels in each of the countries) a well-founded conclusion about the possibility of exporting (or importing) the corresponding goods. The "big country-small country" situation In studying the theory of comparative advantage, the erroneous conclusion is sometimes drawn that a large country, due to its huge size and economic strength, can appropriate all the gains from international trade, using their advantages over a small and weak country. However, in the arena of free world trade (if it is really free), the rules of the game are not the same as in the ring, where a big and strong guy can bring down a small and frail one. Under free world trade, just the opposite is true. When two countries are not equal in size, all the benefits of trade between them can go to the small state, while the big country gets nothing. For example, suppose the world consists of only Russia and Greece. Let us also assume that Greece has a comparative advantage over Russia in the production of wine. Due to the difference in the territorial size of Greece, it will be impossible to saturate the huge Russian market with wine. Accordingly, Russia will have to produce a very significant amount of wine under these conditions, and world prices will thus be practically equal to Russian domestic prices. This means that the terms of trade will practically coincide with Russian autarkic relative prices (opportunity costs). But because there will be no distinction between Russia's opportunity cost of wine production and the terms of trade (the world price), Russia may not gain anything. Under such conditions, all the gains from international trade will go to a small country (Greece). Big country(Russia) will simply redistribute its resources in such a way that it will enable a small country to specialize in wine production and reap the full benefits of international trade. This is a perfect example of the work of the "invisible hand" of Adam Smith. The Monetary Aspect of International Trade So far, we have considered the international exchange of goods without taking into account its monetary, or rather, foreign exchange, aspect. We assumed, for example, that natural gas is exchanged by Russia directly for wheat. This, of course, is not true, as countries actually trade with each other through foreign exchange markets, where one can exchange one currency for another to pay for imports. D. Ricardo showed in his theory that the mutual benefit of foreign trade is preserved even when the international exchange of goods is carried out with the participation of money. What role does money play in this? Of course, auxiliary. If A. Smith likened trade to a wheel with which human civilization moves forward, then money (and in international trade - currency) can be considered as oil, a lubricant that makes this movement smooth and easy. If at a given exchange rate national currency If a country fails to cover the costs of imports with export earnings, they can be balanced by changing the relative prices of domestic and foreign goods in monetary terms. In a world where money exists, this equalization of payments is achieved:
In table. 3.9 labor-intensive products are textiles, and capital-intensive products are steel. Fabric is labor intensive relative to steel because its production requires more capital per unit.
Let us assume that the economic system provided 900 units. labor and 600 units. capital. Using these data as the supply of labor and capital, we can construct a production possibilities curve the following kind(Fig. 3.8).
Problem number 142. opportunity cost calculation
At the same time, such a division will allow uniting separate industries and territorial complexes, establishing a relationship between countries. This is the essence of MRI. It is based on economically advantageous specialization selected countries in the production of certain types of goods and their exchange in quantitative and qualitative ratios. Development factors The following factors encourage countries to participate in MRI:
At major countries there is more opportunity to find the necessary factors of production and less need to engage in international specialization. opportunity cost
Opportunity cost formula
Related video Pay attention Fixed costs the company must bear in any case, to a certain extent they are practically independent of production volumes. Educational materials
In order to produce 3 tons of cheese, Sweden spends 3*20=60 hours. Therefore, to obtain 1 ton of wine from Portugal, she needs to spend 60 hours. But if she wanted to produce wine herself, she would have to spend 100 hours. Her benefit from specialization and trade was 40 hours. Portugal exchanges 1 ton of wine for 3 tons of cheese from Sweden. It takes 25 hours to produce 1 ton of wine.
Therefore, to receive 3 tons of cheese from Sweden, she needs to spend 25 hours. But if she wanted to make the cheese herself, she would have to spend 3*40=120 hours./ typical tasks for met-11 with solutions
How to Calculate Opportunity Costs
How to Find Opportunity Costs
Costs. production cost formulas
The intersection of the interests of Sweden and Portugal is in the range 1 CHEESE ∈ (0.2;1.6)WINE.5.3 examples of solving some problems