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PFA-International Trade Theory Can you further de...




PFA-International Trade Theory Can you further develop the following question and solution into a one page single spaced paper with references? 1. Most doctors, if they needed to, could type their own letters and memos on a typewriter or word processor, and deliver them to the post office. Yet, most doctors, and other professions, hire a typist to do these tasks. Using theories of international trade, explain why a doctor would hire a typist to type his letters and memos, even if he could do it himself. If a particular doctor could type faster than the fastest typist, explain why he still might hire a typist to type his letters and memos. Use what you have learned from international trade theory in answering this question. (1 page max.single spaced); ============================ The answer lies in theory of comparative advantage as explained by Ricardo. It is not enough to be better than another person in a particular task. When a doctor can type faster than a typist he enjoys absolute advantage over the typist for this job. However in order to work more efficiently the doctor needs to look at his comparative advantage. A doctor has 2 alternative uses of his time. One is to type memos, and the other is to earn fees by seeing patients. Also suppose that he can give typing to his typist and pay him X (assume). A doctor has comparative advantage if the hourly earnings possible if he were to see patients, instead of typing memos, was higher than X. This way the opportunity cost of his time ( X) is lower than his current earning. The concept of opportunity cost lies at the heart of comparative advantage. In terms of trade theory the two goods are typed pages and patients seen. If the opportunity cost of seeing patients is lower for doctor compared to typist( assuming typist can also see patients)then he is better off seeing patients, as he enjoys comparative advantage in this activity


Paper#14019 | Written in 18-Jul-2015

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