Exercise on Applying Comparative Advantage and Economies of Scale Concepts

Exercise 1: Writing a Story about a Relationship Applying Comparative Advantage Concept

The assignment will be about applying what you were told in class to your own life. Administrative particulars

• Please use the font size at least 11. As of the rest – style, number of pages, etc. – it is completely up to you. I do not evaluate your assignment based on the literary criteria or number of pages.

• List all the sources you have used while writing your assignment.

• Make sure your answers are clear, complete, and correct. Be as specific as possible. Provide explanations and arguments. Do not leave anything for a reader’s interpretation or guessing.

In class, you were told about comparative advantage with examples given of businesses and industries. Yet, the idea that people specialize into their comparative advantage and then trade with others who have a different comparative advantage can also be applied inside families and partnerships.

In this exercise, I would like you to write a story. I want you to pick a relationship between two people you know well. They could be husband and wife, brother and sister, close friends, business partners, or any other close pairing. You can pick a relationship you are part of, but it could also be a relationship between others, like friends you know, family you know, or any other relationship you know well.

Describe that relationship in terms of the comparative advantages had by each side and the trade that there then is between them in terms of goods and services produced by each side. This means you must describe the things that each side of that relationship is good at and what they thus produce that is then 2 shared (traded) with the other. Bear in mind that trade does not always need to involve money. Also bear in mind that trade is different from co-production (like doing an activity together).

As with all the concepts we discuss, I would like you to be able to recognize in the real world the phenomena that we discuss in class. This leads to a more systematic way of perceiving the reality.

The goal of this exercise is not to explain what a comparative advantage is; it already is explained above. Rather, the goal is for you to reflect on your own experiences and memories to find examples from your own life of the concepts discussed in class. I am hoping to read some interesting stories.

Read the slides and background literature on the topic of different types of economies of scale. Then please think of the organization you work for or one that you know well (like a previous job or the job of your partner, or some other organization you know a lot about). Describe at least 3 economies of scale in that organization. Also describe at least 3 diseconomies of scale in that organization. Explain why you think they are (dis)economies of scale.

Then make a judgment on whether you think the organization as a whole still enjoys economies of scale overall ‘at the margin’: would the organization produce more than 10% extra if its size (in terms of people working for it, machines, offices, etc.) was 10% bigger? Argue why you think that is the case.

[5 possible bonus points. Tough question]. Explain why your organization is not actually bigger or smaller, depending on whether you have argued whether it is enjoying economies of scale or diseconomies of scale at the margin. Use economic language in that explanation.

Watch the video of Dr Manal Shehabi on hydrogen production in the Gulf (copy the following link in your browser: https://twitter.com/ManalShehabi/status/1413831033703763973 ). [10 points] In your own words, and in no more than 200 words, summarize the information in the video. 3 [30] Based on the video, the slides, and the background reading, in no more than 500 words describe how you would advise the minister to proceed with respect of hydrogen production and development in the Kingdom. Pay clear attention to the role of government, the role of the private sector, and the role of what is not yet known.