Question

1. In the Lesson of the Pencil video, Milton Friedman describes how the production of pencils has been impacted or shaped by specialization and the division of labor.

What does Friedman attribute this to? In other words, what makes it all possible?

2. In the 1960s, the U.S. Boeing Aircraft Company decided to drop out of the race to build a supersonic (i.e., faster than the speed of sound) plane like the Concorde and built the Boeing 747 instead. Boeing thought that there was a better market for the 747 compared to the Concorde-type plane. It was a smart move. Why?

3.When they were price discriminating in the market for their plastic molding powder, how did chemical companies DuPont and Rolm & Haas prevent cross-over and arbitrage?

4.Henry Ford did not invent the automobile. He did not invent the moving assembly line. He did not invent any major new technology or features in his Model T.

What was the secret to his success, in other words, what was he able to do that no one else had done that made him so successful?

5.In price discriminating in the sale of discount economy class or coach seats, how do the airlines prevent cross-over?

6.In the 1970s, OPEC was a huge success while OBEC was a huge failure. Why was OPEC so successful as a cartel while OBEC was a miserable failure as a cartel?

Answer 1

Q1) In his Lesson of the Pencil video, Milton Friedman keeps his argument across in just two-minutes, fourty seconds , about a common household object like the pencil. He goes on to explain how something as simple as a pencil is the final product of various, complex economic processes involving concepts like divison of labour, international trade, comparative advantage and free market. He says that this example is a perfect combination of Adam Smith's concept of invisible hand i.e. free market and Hayek's theory of role of the price system which makes the individual consumers carry out their own desirable actions without any other person telling them what to do. After hearing the story of the pencil, one may be  surprised as to how complicated the making of a simple pencil actually is. Milton Friedman made a statement that there is not a single individual who could make the pencil, and went on to justify his statement remarkeably. He gave the information, that the wood for the pencil came from a state of Washington, the saw the tree was cut with required steel which was derived from iron ore.The lead nip of the pencil is compressed graphite which comes from certain mines in South America. The red rubber top comes from Malaya, where the rubber trees are imported from South America. Also, the brass ferrule, the yellow paint, the black paint which made the lines, the glue which holds it all together must be all coming from different sources in the world. There are literally, multiples of thousands of people who cooperate to make this single pencil , and when one goes to the store to buy the pencil, there is the trade of a few minutes of your time with a few seconds of those thousands of people's time. This is the wizardry of the price system which brought all these people together, got them to cooperate, got them to do the kind of work they are best in, to produce this pencil, which one can then buy for a mere sum. This is why the operation of the free market is so crucial and promotes productive efficiency as well harmony and peace all over the world. So, the summary of this lesson is that not one individual person has the knowledge or the skills required to carry out all the various procceses needed to make a pencil. It takes the combined knowledge and skill of numerous people , who are doing what they specialize in , in order to give way to teh final product, the pencil. And of all these labourers who are divided and working in their specialized field do it for pay. They trade their skills, hardwork, knowledge and labour for their wages. Now, there is no 'master mind' or ultimate dictator who directs the work and actions of all these people involved. The miracle lies in the fact that the market, the demand, the supply, the price, etc. brings these people together in the exact right way. In this way, humans can put together their efforts naturally in the economic system and this is true for almost all consumer products in the economy. The moral of the lesson is that freedom works efficiently. The government should not try to control, direct,plan, or dictate the production of goods and services. There should be complete freedom and people should be allowed to use and trade their knowledge, skills and labour freely.

As per rules, have answered the first question. Thank you!