Macro & Micro economics Essay Example | Topics and Well Written Essays - 1500 words - 2

Macro & Micro economics - Essay Example With the rising income levels of most of the economies, the demands for entertainment products like dolls have substantially increased. In the modern age, dolls are often made of rubberized plastic materials. These materials comprises of crude oil and national gas in them. There are special machines that help to give shape to standardized pieces of doll parts in the manufacturing process. Nowadays to park more potential buyers, doll manufacturing companies use special chemicals to produce dolls of various skin colors to make them attractive to various types’ customers belonging to different global zones. Car Production Process Unlike doll production, automobile industry or car production process is highly labor intensive in nature. Mercedes, Honda, Tesla, BMW etc are the various companies manufacturing cars. With the growth of per capita income levels and the improvement in the rate of urbanization in most of the economies in the world, the proportions of cars demanded in the market have increased significantly. However it should be considered that manufacturing of cars requires high state of technology and exclusive machineries. It is clearly observed in the video that the level of car production process takes place via various steps, where there are huge modern machines automatically executing the manufacturing process. Thus unlike doll industries, car manufacturing industries requires large amount of electricity and petroleum for its working. Hypothetical Input Output Matrix Industry Input Costs Toy Industry (manufacturing dolls) Automobile Industry (manufacturing cars) Cost of Labor Input $153 million $85 million Cost of Capital Input $ 60 million $200 million (Source: Authors Creation) The above hypothetical input industry 2x2 matrixes clearly shows that the gross cost of labor input is more than capital input in the toy industry producing dolls. On the other hand, the automobile industry manufacturing cars require more expensive capital input cost than labor cost. Thus it is quantitatively proved that the toy industry is a labor intensive industry and the car manufacturing industry is a capital intensive industry. Factor Intensity and Factor Abundance China is the most populated nation in the world. Perhaps this is the reason for which the country is rich in terms of labor resource. The nation always concentrates in labor intensive modes of production. It is a labor abundant nation, where the size of its labor force is 937.27 million as recorded in 2011. On the other hand, U.S. is a nation rich in terms of financial resources. This is the reason for which the country is a capital abundant nation that is rich in terms of technological knowhow. The following section of the essay will concentrate on the factor endowments of the two countries and the factor intensities of the industries in a graphically represented Hecksher Ohlin model. Figure 1: Hecksher Ohlin Model Car Production Doll Production The production Possibility Front iers (PPF) shows the two combinations of two goods that can be produced with the given amount of resources and state of technology1. The steeper PPF is of U.S., signifying capital abundance and intensity in production. The flatter PPF is of China, signifying labor abundance and intensity in production. The convex lines are the isoquants that show the different combinations of inputs that can be utilized to produce the same amount of output. B and E are the points inside the PPF of U.S. and China respectively, showing situations where all the resources are not efficiently used. A and G are the autarky or non trading positions of U.S. and China