Saturday, November 19, 2016

Cost of Thanksgiving Day Meal in Minimum Wage Terms...

The American Farm Bureau has published its "annual informal price survey of classic items found on the Thanksgiving Day dinner table" Found HERE.

This year the items on the market basket (you can find those as well at the link) totaled $49.87.

In 2016 the minimum wage is $7.25 per hour. This means it takes a minimum wage worker 6.9 hours of labor to earn enough to purchase the meal.

In 1986 when the the AFB started doing this survey the basket totaled $28.74.

In 1986 the minimum wage was $3.35 per hour. This means it took a minimum wage worker 8.6 hours of labor to earn enough to purchase the meal.

That is a difference of 1.7 hours less the current worker works to earn enough for the meal.

This is not to suggest that we should be satisfied with the current minimum wage.

It only is a comparison of purchasing power from one time period to another in terms of, in isolation, buying basic items to celebrate a widely celebrated US holiday.

Source: American Farm Bureau

Friday, November 18, 2016

Nice excerpt from the WSJ that illustrates Comparative Advantage.

The following is from a WSJ article on the automaker Ford's decision to produce a model in the US versus perhaps moving production to Mexico.  The article is about the politics of the situation, but the following excerpt caught my eye
"...Like many of its rivals, Ford is increasing production of more profitable trucks and sport-utility vehicles in the U.S. while investing to boost output in Mexico for lower-margin small cars...." (WSJ)
Without mentioning it by name, this nicely sums up the microeconomic concept of "Comparative Advantage" all students learn at the beginning of a semester of basic economics.

Ford can use its factories to produce either small lower profit margin cars or they can use them to produce larger higher profit trucks and SUV's.  They could conceivably do both but, assuming limited resources, the factories (and the workers) produce higher value with the larger vehicles.  

The Opportunity Cost of producing trucks and SUV's  (large profit margin) is what they give up in small car production (small profit margin).

The Opportunity Cost of producing small cars (small profit margin) is what they give up in trucks and SUV's (large profit margin).

Which is a more economically efficient allocation of a nation's scarce resources?
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