Economics 221 River Transportation Flatboats Rivermen Load up crops at the end of season float Name from flat underbelly Started late 1700s As big as 20 by 100 feet down to New Orleans Very difficult Take boat apart when done Walk back takes months If we ask how he loaded his flatboat or barge one squint of his eye would blister a bull s heel When we inquire how he found the channel amid the shifting bars and floating islands of that tortuous two thousand mile journey to New Orleans the very infant that turned from his mother s breast and called out for a bottle of old rye When we ask how he overcame the natural difficulties of trade Billy Earthquake is the genuine double acting engine and can out run out swim chaw more tobacco and spit less drink more whiskey and keep soberer than any other man in these localities 1 Keelboats Keelboats Keel longitudinal beam to which ribs were attached Stronger than Flatboats Lewis Clark s boat Discovery Similar to Flatboats but could go upstream kind of Sail Pole Oars Tow it from land Were viewed as substitutes Steamboats 1817 first successful trip on Western Rivers Mark Twain When its steamboat time you steam Keelboats disappeared 2 Flatboats How do you measure cost 1816 1287 flatboats in New Orleans The cost of the boat construction 1847 2792 flatboats in New Orleans What happened Why did the introduction of a superior technology actually increase the use of flatboats The Point Opportunity Costs The relevant way to measure economic costs are with opportunity costs The opportunity cost of an item is what you give up to obtain that item While there were no major technological improvements to flatboats they did get cheaper because of the reduced time cost Examples Cost of going to college Tuition Books Buying 6 acres of olive trees The Yankees Is there an opportunity cost to signing Mark Teixeira 3 Numerical Example Production Possibilities Frontier Beer and Chili Suppose that on a Sunday afternoon Darrell can either brew two batches of beer or he can make 3 batches of chili What is the opportunity cost of a batch of beer 3 2 a batch of chili The production possibilities frontier is a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology Figure 2 The Production Possibilities Frontier Quantity of Computers Produced 3 000 2 200 2 000 C B A 1 000 D Production possibilities frontier 0 300 600 700 1 000 Quantity of Cars Produced Guns and Butter Suppose that we have 100 units of labor to divide between guns production or butter production Each unit of labor assigned to gun production produces 2 units of guns Each unit assigned to butter produces 5 What is the opportunity cost of one unit of units of butter butter 4 What does the PPF look like Guns 200 500 Butter Sample problem Guns and Butter Region W 10 units of labor Region M 10 units of labor 2 Gun per unit of labor 5 Butter per unit 2 Guns per unit of labor 2 Butter per unit Analysis Joint PPF Draw the joint PPF Comp Adv Absolute Adv 5 Sample problem Guns and Butter Analysis Region W Region M Region A 10 units of labor 2 Gun per unit of labor 5 Butter per unit 10 units of labor 2 Guns per unit of labor 2 Butter per unit 10 units of labor 4 Guns per unit of labor 3 Butter per unit Who has the comparative advantage in Guns Who has the absolute advantage Draw the joint PPF What if there were many many regions How does the relate to complete specialization in the real world Palmers and Fishers Trade Need Water and Fish to survive Who has CA Palmers Fishers Can get 2 fish each or 2 water Can get 6 fish each or 2 water for one water AT MOST how many fish would the Fishers give up for one water At least how much would the Palmers need Lets just say they trade 4 fish for 2 water 6 Thirsty Fishermen Landlubbers arrive Thirsty Fishermen show up willing to trade 6 Awful fishermen but able to get water fish for 2 waters Who trades What happened to inequality Can t produce any fish at all but can get two units of water each Willing to trade two units of water for one fish What is new outcome Parable of Globalization Event 3 Technological change Two sectors fish and water Palmers can now catch say 10 fish each Two groups within a country high skill and low skill Fishers and Palmers Event 1 Open economy up to high skill labor thirsty fishermen Decrease inequality Event 2 Open economy up to low skill labor landlubbers What are possible terms of trade now What if the Palmers trade 8 fish for 2 waters 7 Summary Extra Problem Big Idea There exists gains from trade that are driven by comparative advantage even when one party is better at everything Calculate opportunity cost from graph or chart Identify comparative advantage and absolute advantage from chart or graph Determine range of possible prices and demonstrate gains from trade Joint PPFs Iran 13 million hectares of land Grains 2 tons per hectare Pistachios 2 tons per hectare Draw the PPF calculate the opportunity cost Suppose with no trade Iran would use 11 million hectares for grain production Canada Extra problem 2 Grains 2 5 tons per hectare Pistachios 0 5 tons per hectare What is the opportunity cost in Canada Suppose that this is the world price of pistachios 8 days per month John Darrell Tomatoes per day 2 2 Beer per day 1 3 8 8 days per month John Darrell Tomatoes per day 2 2 Beer per day 1 3 Eric 2 batches of beer but 0 tomatoes 9