Market Behavior Case Study

Submitted By arincon01
Words: 1580
Pages: 7
Open Document
Market Behavior
Case Assignment (Module 01) name date
TUI University Abstract
This paper describes the concepts of Comparative and Absolute Advantage. I will demonstrate the basic concepts of module to a classic model in economics by showing the USA and Canada in trade. This will be done by assuming there are only two goods in the economy; wheat and corn. I will also include how trade affects the production possibilities frontier and how other factors can expand the production possibilities frontier.

1. Explain the concepts of Comparative and Absolute Advantage.
If there were only 2 goods in the economy: wheat and corn. Wheat Corn
USA 4 2
Canada 5 8
Opportunity cost represents the lost value, which is suffered as a result of choosing to produce one amount of a good over a given amount of the other. In this case, we assume that each party’s ability is limited to the production of the listed quantities only. Every time the US will produce 4 units of wheat and 2 units of corn while Canada will produce 5 units of wheat and 8 units of corn. For every 1 unit of wheat the US produces, there is 0.5 unit of corn produced as well by the US. However, for every 1 unit of corn the US produces, there are 2 units of wheat produced as well. For every 1 unit of wheat Canada produces, there are 1.6 units of corn produced by Canada. And for every 1 unit of corn produced by Canada, there is 0.6 unit of wheat produced. According to these figures, the US is more efficient in the production of wheat while Canada is more efficient in the production of corn.
Absolute advantage is an economic theory initially developed by Adam Smith in his “Wealth of Nations” book. He established that a party (person, country, company) has an absolute advantage over its competitor(s) if/ when the said party can produce greater outputs by using the same/ equal resources or inputs as its competitor(s). Looking at the given example, Canada produces 5 units of Wheat when the US is producing only 4 units and Canada produces 8 units of Corn when the US is only producing 2, using the same inputs. In this case, Canada has an absolute advantage over the United States in the production of both goods.
Comparative advantage is an extension of Adam Smith’s theory according to British economist David Ricardo. It was developed by David Ricardo in response to contentions that in case the same party has absolute advantage in everything, trade was not anymore advantageous to that said party. To illustrate his argument, I would rely on an example given in one of our suggested background writings: An attorney may be a better typist and lawyer in the sense of arguing cases than his secretary. However, does it mean that the said attorney should get rid of his secretary? David Ricardo’s response would be a positive NO. The fact is that the attorney would rather focus on arguing cases, an area in which he would be more efficient and leaving the typing to his secretary. This is also true about companies and countries. In the previous example, Canada has an absolute advantage in the production of both corn and wheat. However, if each country had to specialize on one product alone, the opportunity cost of production of wheat would be higher for Canada (has to give up 1.6 unit of corn to produce 1 unit of wheat) and much lower for the US (has to give up 0.5 unit of corn to produce 1 unit of wheat). On the contrary, the opportunity cost of production of corn would be much lower for Canada (has to give up 0.6 unit of wheat to produce 1 unit of corn) than for the US (has to give up 2 units of wheat to produce 1 unit of corn). In sum, based on the opportunity cost, the US would be considered to have a comparative advantage in the production of Wheat, while Canada will be considered to have a comparative advantage in the production of corn. Therefore, trade will still be advantageous to both parties if each focused on the area in which they had a
Show More

Related Documents: Market Behavior Case Study

Explain Behavior In Financial Markets

Since the late 1980's, economists have been worrying that efficient market theories don't explain behaviour in financial markets. Numerous studies provide evidence that individuals can be expected to demonstrate behavioural biases. There are two types of investors in the market; they are the sophisticated investors (i.e. equity fund managers), and individual investors. Some journals refer to sophisticated investors as “arbitrageurs” and “rational speculators” versus all other investors, or “noise…

Words 1919 - Pages 8

Legislation: Marketing and Segmentation Essay

Task 1.4 Pass Analyse the principles of market segmentation and its uses in marketing planning. Market segmentation According to Armstrong and Kotler (2007),market segmentation involves dividing a market into smaller groups of buyers with distinct needs ,characteristics, or behaviors that might require separate marketing strategies or mixes. Demographic segmentation According to Dale (2007),demographics is the study of the makeup of the population.Factors that affect the makeup of the population…

Words 1029 - Pages 5

Questions On Consumer Behavior

Class # 3 Agenda: Chapter 5 (Consumer Behavior) Chapter 6 (Business Buyer Behavior) Dr. Rebecca Reczek Autumn 2014 What is Consumer Behavior? • Consumer buyer behavior: the buying behavior of final consumers, individuals and households, who buy goods and services for personal consumption Model of Consumer Behavior Characteristics Affecting Consumer Behavior Factors Influencing Consumer Behavior Characteristics Affecting Consumer Behavior: Culture • What is culture? LEARNED set of meanings…

Words 1355 - Pages 6

B Whitten Consumer Behavior Retailing Midterm Exam Fall 2011 Essay

Describe the process of market segmentation. Why is it important in the study of consumer behavior? Market segmentation is the method of dividing a total market into groups consisting of people who have somewhat similar product needs. A market segment is the breaking up of a market made up of people or a business with one or more characteristics that cause them to demand similar products or services based on traits of those products such as price or function. In order for a market segment to be workable…

Words 1584 - Pages 7

Essay On Cross Cultural Consumer Behavior

Cross Cultural Consumer Behavior: An International Perceptive in Consumer Behavior PSY/322 February 24, 2014 Susan Rusnak Cross Cultural Consumer Behavior: An International Perceptive in Consumer Behavior Case Studies This study emphasizes cultural differences of consumer behavior in the international market place. This study will evaluate the consumer behavior and purchasing decisions. Consumer behavior as it related to emotional and cognitive consumer reactions. Cross cultural…

Words 1724 - Pages 7

business 3455 Essay

your IMC Godmothers Fairy 2; Here to assist you in meeting your target market Fairy 1…building relationships with them Fairy 2…and influencing their behavior Kora; And how exactly do you plan on doing that? Fairy 1; Through the 5 key features of IMC! Profiling the target market… Fairy 2; Using the relevant media… F1; Achieving communication synergy F2; building customer relationships F1; and influencing the target markets behavior! Kora; So what can I do for you? F1; It’s not what you can do for us…

Words 1211 - Pages 5

Behavioural Finance Essay

are managed, obtained and invested over time. There are two key models within the traditional Theory of Finance:(i) Market agents are perfectly rational: Perfect rational behavior is referred as any new information available for agents is interpreted correctly and uniformly while they are updating their thoughts about the markets, and (ii) Markets are Efficient: The Efficient Market Hypothesis (EMH) considers that all the relevant information has immediate and full impact on the prices. In the last…

Words 5646 - Pages 23

Essay on Marketing Management

wherever a market exists. At the beginning, there were only a handful of basic ways of marketing. As time goes by, it transforms into various kinds of methods in present, the organizations or individuals get much more choices to make the decisions which one is suitable for them. Since the computer has been invented, the expression of marketing becomes more interesting and active in most ways; some of marketing programs are more functional. However, in order to survive in today’s market, all the marketers…

Words 2524 - Pages 11

Marketing Strategy and Economic Recession Essay

1864 >Submitted to: Ms. Ewa Maciejewski Business Research Table of Content 1. Working Title 3 2. Purpose and Justification 3 3. Objectives 3 4. Literature Review 4 4.1 Recession 4 4.2 Customer behaviour 5 4.3 Customer behavior during economic recession 5 4.4 Marketing strategies 6 5. Methodology 6 5.1 Research philosophy 6 5.2 Research approach 7 5.3 Research strategy and data collection method 7 5.4 Sample size, data analysis method and ethical issues 7…

Words 1951 - Pages 8

Essay about Relevance of the Study and Knowledge of the Consumer Behavior to Marketing Strategists

’’Consumer behavior is the bedrock of marketing from the perspective of this statement, explain the relevance of the study and knowledge of the consumer behavior to marketing strategists. Consumer behavior has been said to consist much more than the mere use of goals and services marketed by profit-seeking companies and individuals; nor that is it restricted to the actual act of consumption; that it is restricted to individual consumer. However consumer Behavior can be defined as the action a person…

Words 879 - Pages 4