Joye C. answered • 05/13/21
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The three central ideas in economics are choice, cost and scarcity. The situation described has elements of all three. Choice is a free selection between many alternatives. Here the business has examined all available options and measured the pros and cons of purchasing from an unreliable source versus the resources, costs and time involved in the start-up of a local manufacturing facility including trained labor availability. After this reasonable evaluation of all alternatives, the company has made the decision that it would be more profitable and serve their customer base best to manufacture products locally. While elements of scarcity and cost have factored into this decision, it was made due to the economics of choice.
Joye C.
From your question, there would be many factors the company would have to consider including higher wage and perhaps raw material costs. It would be a complex decision also probably involving the construction of a manufacturing facility and purchase of equipment and all the time and resources involved that may cause more time delays in delivering the product than the oversea delays. On the other side, if it is a US firm there may be tariffs and perhaps economic incentives by the US government to bring these manufacturing jobs back to the US economy. There is an element of opportunity in having alternatives to consider but ultimately, if this decision is made, it would be because the business has weighed all these factors and chosen to go in this direction.05/13/21
Bryce O.
Thank you so much for the explanation but just another thing, since there is delays in this situation, for that particular product needed (shortage in this case), there wouldn't really be considered much advantages gained from relying on global supply chains for critical products, and opportunity cost specifically means the potential benefits an individual, investor, or business misses out on when choosing one alternative over another. And also when you mentioned how scarcity in this situation is involved, how would that be the case if I said there was a shortage for these particular products? Aren't those two different things? I'm just a little confused because doesn't scarcity means, almost all resources are scarce, one does not have the ability to create these resources.05/13/21
Joye C.
Scarcity is an issue, as the question is worded, the product was scarce in the country. That may mean that there is not enough of the product to meet the demand which was the original reason the business used the foreign source. However, as the question is worded the country "decides to make the products locally in their own country". They had alternatives. They tried one and found it to be insufficient to meet the needs of demand as well, but it was an alternative they choose not to continue using after weighing all the pluses and minis of the situation and "decides to make the products locally in their own country". Decide is defined as "coming to a resolution in the mind as a result of consideration". To me that is making a choice after considering both scarify and cost. To me it is an illustration of the economy of choice.05/13/21
Bryce O.
oh okay I just wanted to make sure of that, thank you. How about in term of opportunity cost? I had also mentioned how there wasn't much potential benefits that were lost from that decision made of making products locally. Would the situation still be considered the economic concept of opportunity cost?05/13/21
Joye C.
The way the question is worded, the problem is more delivery time, consistency and reliability. Cost is never mentioned as a factor, even though you and I have discussed it. The decision has already been made in the question, if they have already decided they have "come to a resolution as the result of consideration". That consideration means they have already taken into accounts all the factors we have discussed. They had two alternatives: to stay with unreliable, inconsistent and time-delayed delivery or to manufacture in-country to regain control of consistent on-time deliveries. They had choice and made a decision based on consideration of all factors and made a choice.05/13/21
Bryce O.
Thank you so much Joye, just wanted to make sure of that! so this would also be considered the economic concept of opportunity cost since the businesses in that country may have to pay a lot more to its workers then overseas? That would be the only disadvantage.05/13/21