For instance, in this case, there are two nations, Australia and China producing two different commodities being minerals and televisions respectively. Australia is considered to have a comparative advantage in the production of minerals because it can produce minerals at a relatively lower opportunity cost compared to China. This implies that its absolute margin is greater or that its absolute disadvantage is lower in minerals than in televisions. In the same manner, China is considered to have a comparative advantage in the production of televisions because it can produce televisions at a relatively lower opportunity cost compared to Australia. This implies that its absolute margin is greater or that its absolute disadvantage is lower in televisions than in minerals (Mankiw, 2014).
AQ3 Suppose there has been an advancement in wheat farm technology during the mining boom. What will be the effect of this technical advancement, ceteris paribus, on the market for bread? If you are the owner of a bakery, what would be effect of this market outcome on your bakery’s revenue? Explain why your bakery may not necessarily be better off after the technical advancement in farm technology. Use appropriate diagrams where necessary.
The consideration in this regard is the price demand elasticity. In definition, the price elasticity of demand takes into account a measure of the magnitude of responsiveness of the demand of one commodity to a change in its own price. Notably, if the ratio is greater than one, then the demand is elastic. When the ratio declines to smaller than one, the demand becomes inelastic. If the ratio is equivalent to one, then the demand becomes unitary. In the supposition that there has been an advancement in wheat farm technology during the mining boom, the effect of this advancement, ceteris paribus, on the market for bread, would be positive. In particular, this would give rise to an increase in the amount of supply. This is largely for the reason that better technology used in the wheat production is bound to facilitate the ability to not only plant but also to harvest more commodity and therefore increasing the quantity of supply within the market (Dwivedi, 2002).
As an owner of a bakery, the effect of this market outcome on the bakery’s income would also be positive. An increase in supply would be able to increase the number of products being retailed in the bakery and therefore an increase in the revenue generated. However, it is imperative to note that the bakery may not necessarily be in a better position subsequent to the technical advancement in farm technology. This is largely for the reason that the effect is that there will be a shift in the short run supply curve whose position will be reliant on whether the harvest is good or bad. More often than not, the supply curve will have a tendency of being inelastic for the reason that the amount put on the market will be mainly reliant on the size of the harvest. In addition, the short run elasticity of supply is minimal bearing in mind that once a certain amount of crop has been planted, it is relatively difficult to increase or decrease the resulting output. Therefore, regardless of the technology advanced in a certain planting period, this cannot alter the initial amount that was planted and therefore the harvest cannot change (Dwivedi, 2002).
AQ4 Suppose income elasticity of a mid-sized family car in Australia is 1.4. What will be
the effect of mining boom on the demand for cars?
Income elasticity…
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