Welcome to Econ 325 Economics of Gender

Week 2Beginning January 29

Monday, January 29

• Note: All OCAs must be typed• Return and discuss OCA1

• # 4, page 12. Draw a separate graph for each question and describe the changes in the equilibrium wage rate and the number of workers.

Household as an Economic Unit (Chapter 3)

• There are two Individuals: Chris & Pat

1. Chris has absolute advantage in market work if in given amount of time he/she can earn more income than Pat.

2. Chris has absolute advantage in home work if in a given amount of time he/she can produce higher valued home work than Pat.

Who has absolute advantage in market work?

• Pat earns $20/hour at his/her job.

• Chris earns $25/hour at his/her job.

Comparative Advantage

• If Pat’s opportunity cost of producing one dollar worth of homemade good is lower than that of Chris’s, Pat has comparative advantage in home work.

Who has comparative advantage in home work?

• For every dollar of home good he/she produces Pat has to give up $5 earned income

• For every dollar of home good he/she produces Chris has to give up $3 earned income

•ICA3

• Study Chapters 1 though 3 (including the appendix)

Wednesday, January 31

• Paper topic is due February 16• Need at least 2 resources, one of

which will be where you will get your numbers from

• Exam 1 February 12• $1000 scholarship!?

Return and discuss ICA3

Hourly wage

Hourly value of home good

Pat $20 $10

Chris $15 $15

1. Pat has absolute advantage in _______.

Chris has absolute advantage in ______.

Discuss ICA3Hourly wage

Hourly value of home good

Opp cost of $1 of home good

Pat $20 $10 $2 wage

Chris $15 $15 $1 wage

2. Who has comparative advantage in home good?

Discuss ICA3

• Notes1. Just because one has absolute advantage

it does not mean that he also has comparative advantage.

2. When there are 2 individuals and 2 tasks• It is possible for one individual to have absolute

advantage in both tasks • It is not possible for one individual to have

comparative advantage in both tasks.• If one has comparative advantage in on task,

the other person will have comparative advantage in the second task

Discuss ICA33.

income Value of home good

Total value

Pat $400 $200 $600

Chris $300 $300 $600

Total value

$700 $500 $1200

Discuss ICA3

4. Pat should work outside home and Chris should work at home (based on comparative advantage)• Pat will make $800 income in 40

hours• Chris will produce $600 of home good

in 40 hours

Discuss ICA35. The terms of trade depends on opportunity cost• Opp. cost of $1 of home good

• For Pat = $2 of income• For Chris = $1 of income

• Chris would want to trade $1 of home good for more than $1 of income. Why?

• Pat would want to receive more than $1 worth of home good for $2 of income. Why?

• The range of mutually beneficial trade• $2 income > $1 home good > $1 income

• $1.5 income for $ 1 of home good is good, or• $1.75 income for $1 of home good is good• Or any multiple of these terms is good too.

• How about $75 income for $50 of home good?

Discuss ICA36.

income Value of home good

Total value

Pat $725 $50 $775 (before $600)

Chris $75 $550 $625 (before $600)

Total value

$800 (before $700)

$600 (before $500)

$1400 (before $1200)

Production Possibilities Frontier (PPF, Appendix of Chapter 3)• An individual’s PPF shows different

combinations of market good (earned income) and home good the individual can produce efficiently in a given period of time.

• Pat & Chris’s PPF• Slope

• What does it measure?

• Unattainable points• Shifts

Derivation of the household PPF• Pat and Chris form a household• What is the value of market good at the

vertical intercept?• Starting at the point where both

individuals work full time (the vertical intercept), who is more likely to reduce his/her hours of work at his/her job to produce one unit of home good?

• Horizontal intercept

Friday, February 2

• Paper topic is due February 16• Need at least 2 resources, one of

which will be where you will get your numbers from

• Exam 1 February 12• Study Chapters 1- 3• Study Article 1• Expect ICA/OCA on Monday

Gains of household formation• Individual PPFs/ household PPF• Household per capita PPF• Is this per capita PPF better than

the individual PPFs? Why?• Some points that were

unattainable before become attainable

What if both individual had the same PPF?

• Who has comparative advantage in home good? Market good?

• How would the per capita household PPF look?

• No gains from forming a household• The more different the PPFs ==>

the higher the comparative advantage ==> the higher the gains of household formation

Suppose Pat and Chris form a household

• How are they going to allocate their time between production of market good and home good?

• Where are they going to be on their household PPF?

A household’s indifference curve

• Shows different combinations of home good and market good that equally satisfy the household

• Example• Slope• Why is the slope declining?• Higher/lower satisfaction• A households indifference curves

can’t intersect. Why?