Answer questions！
Econ 339: comparative advantage and gender roles (Eswaran pp 211-213)
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Time allocation in two-person household: specialization and trade
From WHO COOKED ADAM SMITH’S DINNER?
P 16: “For the butcher, the baker and the brewer to be able to go to work, at the time Adam Smith was writing, their wives, mothers or sisters had to spend hour after hour, day after day minding the children, cleaning the house, cooking the food, washing the clothes, drying tears and squabbling with the neighbours. However you look at the market, it is always built on another economy.
P. 56: “…the very notion of a full-time career is still built around full-time domestic help.”
Econ 339: comparative advantage and gender roles
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Does everyone know who Adam Smith was/did?
Author of The wealth of nations
Source of free markets; argued that if everyone selling/producing to maximize
own profits would maximize wealth/welfare.
Quotations from WHO COOKED ADAM SMITH’S DINNER? (proper citation to come)
P 16: “For the butcher, the baker and the brewer to be able to go to work, at the time Adam Smith was writing, their wives, mothers or sisters had to spend hour after hour, day after day minding the children, cleaning the house, cooking the food, washing the clothes, drying tears and squabbling with the neighbours. However you look at the market, it is always built on another economy.
For “what is home production, and why do we care?” P 17: “Adam Smith only succeeded in answering half of the fundamental question of economics. He didn’t get his dinner only because the tradesmen served their own self-interests through trade. Adam Smith got his dinner because his mother made sure it was on the table every evening.”
P. 56: “…the very notion of a full-time career is still built around full-time domestic help.”
Econ 339: comparative advantage and gender roles
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Market work vs homework
B: 2 person household
Suppose, for the moment, we ignore leisure:
Either L = 0, or fixed
Look at allocation of total household time between M and H
Suppose each individual has ability to produce both home goods and market goods, as given by
Hourly productivity
Market goods Home production
Fred $6/hr $5/hr
Jane $5/hr $10/hr
Econ 339: comparative advantage and gender roles
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Single vs couple
Consider 8 hour day for each individual
Daily productivity
Market goods Home production*
Fred $6/hr x 8 hrs = $48 $5/hr x 8 hrs = $40
Jane $5/hr x 8 hrs = $40 $10/hr x 8 hrs =$80
Sketch individual budget constraints.
If specialize, and exchange, sketch budget set.
Individual ppfs to joint ppf
1. INTERCEPTS
a) horizontal? if both spend all their time in home production, total value of goods produced is bundle A in diagram: 80 (from Jane) + 40 (from Fred) = 120
b) vertical? If both spend all time in market labour, maximum consumption of market produced goods is bundle C in diagram: 40 (from J) + 48 (from F) = 88
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2. SLOPE of joint ppf? Reflects the opportunity cost of household production.
Depends on productivities of the two individuals in the two areas of production.
Start with bundle (0, 88), where both work full time in market
.
If want any household production, one (or both) individual(s) must take time away from market labour. Consider adding one unit of household produced goods.
ASSUMPTION: couple wants to maximize the value produced by the joint labour. This requires minimizing the cost of this first unit of home-produced goods. Therefore:
the person with the lower opportunity cost should go switch first.
Econ 339: comparative advantage and gender roles
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Comparing opportunity costs: comparative advantage
Consider Jane. If she shifts one hour from market to the household, market consumption is reduced by $5 and household production = 10
Jane’s opportunity cost = $5/$10 =0.5
Using the same logic, the opportunity cost of one more unit of household production from Fred = $6/$5 = 1.2 > 0.5
Jane has a comparative advantage in household production
Fred has a comparative advantage in market production.
Econ 339: comparative advantage and gender roles
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Efficient allocation of labour for each possible bundle of (home produced goods, market produced goods) on joint ppf?
Start at both full time in market labour: point A in diagram.
First hours shifted from market labour to household production should be Jane’s. This is portion A-B in diagram.
Slope of joint ppf = slope of Jane’s individual ppf.
At B, Jane is fulltime in household production.
Any further increase in household production must come from Fred shifting time from market to household: portion B-C in diagram.
Slope of joint ppf = slope of Fred’s individual ppf.
Econ 339: comparative advantage and gender roles
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Kink at point B?
Couple’s opportunity cost of an additional unit of household produced good increases as Fred starts working in household along with Jane.
At B, each individual is spending full time in activity of comparative advantage.
Econ 339: comparative advantage and gender roles
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Econ 339: comparative advantage and gender roles
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Econ 339: comparative advantage and gender roles
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Econ 339: comparative advantage and gender roles
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Single vs married
Optimal division of time?
Depends on preferences between C and G
Suppose perfect substitutes – care only about
total quantity of C+G
Suppose perfect complements?
Econ 339: comparative advantage and gender roles
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Suppose both G and C are private goods, and partners split both goods 50/50 – what would gain from marriage be for each individual?
If ppf for 50/50 split inside individual’s ppf, better off single
Econ 339: comparative advantage and gender roles
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Suppose G is public good (kids?)
Econ 339: comparative advantage and gender roles
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How would time allocations change in response to change in market wages?
Fred’s wage?
Jane’s wage?
Econ 339: comparative advantage and gender roles
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C
G
Dotted lines: Fred’s original ppf, and
original joint ppf (with Fred’s wage = w1
Effect of a change in Fred’s market wage: only income effect
Solid lines: Jane’s original ppf, Fred’s
new ppf, new joint ppf (with Fred’s
wage =w2 > w1
Increase in Fred’s wage decreases Jane’s time in market work.
Fred’s ppfs
Jane’s ppf
Econ 339: comparative advantage and gender roles
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C
G
Dotted lines: Fred’s original ppf, and
original joint ppf (with Fred’s wage = w1
Effect of a change in Fred’s market wage: income and substitution effects
Solid lines: Jane’s original ppf, Fred’s
new ppf, new joint ppf (with Fred’s
wage =w2 > w1
Increase in Fred’s wage increases Fred’s time in market work.
Fred’s ppfs
Jane’s ppf
Econ 339: comparative advantage and gender roles
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Other changes to consider:
Increase in Jane’s market wage
- Fred still has absolute advantage in market
- Jane now has absolute advantage in market, but Fred still has comparative advantage in market
- Jane has absolute and comparative advantage in market
2. Increase in productivity in household work
- for one or both individuals.
Production possibility curves
Joint ppf in
Market goods
A
88
Complete specialization
B
48 Fred's PPF
40
Jane's PPF
C
40 80 120
household goods
A-B: Fred specializes in market, Jane works in both
B-C: Jane specializes at home, Fred does both
Production possibility curves
Joint ppf in
Market goods
A
88
Complete specialization
B
48 Fred's PPF
40
Jane's PPF
C
40 80 120
household goods
A-B: Fred specializes in market, Jane works in both
B-C: Jane specializes at home, Fred does both