Question

1. Please list and discuss the roles played by the concept of new technology as it relates to the decision to build factory #5: Even if sales volume is flat, profits are low, and interest rates are high, why would a firm desire to build factory #5, at least in theory?

2. What is residential construction and sales volume, exactly? How many housing units are built, and sold, in this country in a typical year (before March, 2020)?

3. What are six of the occupations that are involved in this sector of the economy? That is, when there is a 20% drop in this activity, residential construction and sales volume, which workers lose their jobs? Why?

4. What could our government do to help cause a rise in residential construction and sales volume in our economy? Please list and discuss three actions that our government could take, at least in theory. What are the forces that may cause a rise or a drop in this area of the economy in the next 12 to 24 months?

New Plant and Equipment Construction, Residential Construction and Sales Volume: One of the greatest factors influencing the volume of factory (new plant and equipment) construction is the R&D (research and development) of new technology. Of course, WE HAVE TO BUILD THE NEW FACTORY! In our factory #5 example, the R&D AND CONSTRUCTION of Factory #5 may result in a. a dramatic drop in the cost per unit (the cost per pair of shoes, in our hypothetical) and/or b. The introduction of a product that is..... NEW! And IMPROVED!, thus causing a rise in Demand, where, if it captures the imagination of the consumer, we may RAISE THE PRICE and increase profits by a great amount. Let’s say that our price per pair currently is $30 per pair, and our cost per pair currently is $27, for a profit of $3 per pair. If a new method of mass producing shoes that saves on labor costs is “invented”, for lack of a better word, we will want and need to build this new factory. Let’s say that Factory #5 lowers the cost per pair to $21 by using less than half of the workers used by Factory #4. We will build this new factory! $30 per pair minus $21 per pair yields a profit of $9 per pair!!!! BUT WE MUST SELL THOSE NEW SHOES!!! If our rivals are building this factory, and we do not.... We will die. (We have rivals) - VERY few firms are true monopolies. Factory #5 may mass produce TWO million pairs of shoes compared to #4 with one million pairs in yearly output. We may build factory #5, then shut down factory #1... thus resulting in FEWER WORKERS ON OUR PAYROLL... SAD BUT TRUE.....Our sales could be dropping along with our profits. Interest rates may rise. We will still need to build that factory. Especially if the product mass produced by this new factory causes a rise in Demand. YET THERE IS A FINITE SUPPLY OF LOANABLE FUNDS AND EQUITY FINANCING available, thus, we have a tragedy: some firms are doing so well that they wish to expand---but are denied financing. What is the proper role of the government? The Obama Admin. lent money directly to Tesla in order for them to expand in Fremont. This may be called ‘industrial policy’. It worked out well. If not, Obama may have been a one term President, even though he was an excellent leader by any metric. Yet the government could be criticized for ‘playing favorites’ since THERE IS A FINITE SUPPLY OF FUNDING that the government may access. If the ‘new’ Mercedes Benz assembly plant built in Alabama (yes, this is on U.S. soil) represented a new and improved SUV, then why did this German firm build the plant here? On U.S. soil? Cheaper labor (the U.S. workers make less and have fewer benefits than their German counterparts),---incredible, but true...the firm will enjoy lower distribution costs (all those rich people on the east coast of the U.S. will buy our cars), and it is easier to ship them from Alabama than from Germany, while avoiding any possible hikes in tariffs the Trump Admin may levy NOW OR LATER---- do you trust Trump? Are you feeling lucky today? How about the next 20 years? I mean, your buyers are here on the East Coast, and Alabama offered HUGE tax incentives to Daimler (Mercedes Benz) to build the plant in Alabama instead of South Carolina, home to a BMW plant. Alabama had to ‘outbid’ South Carolina for the new factory. Also, the German firm avoids any and all possible labor disruptions by dockworkers in the U.S.---now, and for the next 20 years. We do not care if the firm’s headquarters are in Germany. If they build the factory on U.S. soil, then the expenditure is part of the Total Spending on U.S. goods and services = C+ I+ G+(X-M) equation. More on this later!

Answer 1

1) Technology plays a very important role in building decisions. The reason for this is that good and improved technology leads to the fall in the cost of prproduction of the product. So with the fall in prices, the demand for the product will increase and thus the level of profits of the company will also rise.

Firm would desire to build a factory with high level of interest rates and low level of profits only if the level of demand of the product is rising. With the introduction of new technology, firm will be able to produce in mass quantity. Thus the price of production will fall. This mass produce will lead to increase in demand. Thus the firm will build a factory.

2) 5.34 million existing and 6,82,000 new built houses were sold in the US in the year 2019. Approximately 1.15 million were built in that year.

3) The six types of workers who might lose their jobs because of downfall in this sector are:

• Construction superintendent
• Construction estimator
• Pipe fitter
• Carpenter
• Project engineer
• Interior designer

Construction superintendent, construction estimator and project engineer are needed to supervise the site of construction, see if things are going the right way, estimate the costs involved in construction and to plan the construction according to the site.

Pipe fitter are needed to fit the pipes and do plumbing work and carpenters to make furnitures for the houses. Interior designer is needed to design the house. So all these people are closely associated with construction and will lose their jobs with downfall in this sector.

4) Three steps that government can take to rise residential construction and sales in the economy are:

• Lower the rates of interest so that it becomes easier for investors and consumers to borrow.
• Make investment in building infrastructure like roads around the housing colonies which will increase demand for houses.
• Develop new technology that can lead to increase in productivity and lowering of cost of production.

Forces that might cause a rise or drop in this area are:

• Level of interest rate which affects the level of borrowing.
• Level of technology that is used in this area. Good technology can lead to decrease in cost of production and increase in demand.
• Training of human capital for improved productivity.