Financial Crisis And The Collapse Of The Lehman Brothers

It is almost mandatory that every company, institution, firm, organization, business or enterprise – small or huge – has to undergo a financial crisis. Once in a while, it must find it hard to balance its books of accounts. If the situation gets severe, then the organization may even close down. This paper will give a detailed review of one institution -The Lehman Brothers - whose financial crisis led to its fall (Wong Smith, 2010). It will examine the beginning, the end, and the outcomes of the same. In addition to that, the report will also analyze the government policies that relate to the fall of the Lehman Brothers. In details, this paper covers the reasons for the crisis, the impact of the crisis on financial markets and institutions, the impact on the global economy, the response to the financial crisis (the bailout plan and the effect of it on capital markets), as well as the aftermath of the crisis that cause the collapse of this Company. In a way, this paper connects the knowledge I gain from the classroom to the current financial situation, to apply the concepts that I learn in this class, and to better understand the financial system in the United States. Rationale The goal is to study, analyze and report findings of the recent Financial crisis†, and since the Collapse of Lehman Brothers is one of such is, it suits this context. At the same time, it is one of the enlisted topics that the professor asked the class to consider in handling this assignment,Show MoreRelatedThe Collapse Of The Lehman Brothers1638 Words   |  7 PagesThe global financial crisis of 2008 that reeked havoc on most of the financial institutions had them fall into liquidation and bankruptcy. One of the most popular and most debated incident was the failure of the Lehman Brothers. The Lehman Brothers were a leading US investment bank that was worth $600 billion (D’Arcy). The global financial crisis prompted Lehman Brothers to close its leading subprime lender (BNC Mortages) in 23 locations (). The closing of these locations were so aggressive thatRead MoreFinancial Crisis Essay1088 Words   |  5 Pagesinvestors propagated the financial crises. Institutional investors, which is both, individual or companies do enjoy the benefits of reduced commission preferential regulations. This is due to their large and professional investments. Institutional investors like the mutual funds, pension funds, hedge funds like Magnetar Capital, and Life insurance companies like the AIG and investments trusts contributed to the global financial crises of 2007-2008. This financial crisis also referred to as the greatRead MoreThe Collapse Of Lehman Brothers Holdings Inc.1012 Words   |  5 Pages1. Introduction 158-years-old institution, the Lehman Brothers Holdings, Inc., Sought chapter 11 protections on September 15, 2008, indicating the largest bankruptcy filed in the U.S. history. The Lehman declared $639 billion in assets and $619 billion on debts, which surpassed the previous bankruptcy filed by WorldCom and Enron. The Lehman brother was 4th best-ranked U.S. Investment bank and globally 7th best investment bank before the collapse. An industry that had 25,000 employees worldwideRead MoreThe Great Recession And The Housing Crisis1600 Words   |  7 PagesGREAT RECESSION The financial crisis that began in August 2007 has been the most severe of the post-World War II era and, possibly--once one takes into account the global scope of the crisis, its broad effects on a range of markets and institutions, and the number of systemically critical financial institutions that failed or came close to failure--the worst in modern history. Although forceful responses by policymakers around the world avoided an utter collapse of the global financial system in the fallRead MoreThe Financial Crisis Of 2007-20081419 Words   |  6 Pagesthe recent credit crunch. The financial crisis of 2007–2008, also known as the Global Financial Crisis and 2008 financial crisis, is considered by some economists such as Nouriel Roubini, professor of economics and international business at New York University, Kenneth Rogoff, professor of economics and public policy at Harvard University, and Nariman Behravesh, chief economist and executive vice president for IHS Global Insight, to have been the worst financial crisis since the Great Depression ofRead MoreLehman Brothers : A Worldwide Firm1440 Words   |  6 PagesCompany Overview Lehman Brothers Holdings Inc was a worldwide firm, that provided financial service to clients globally. It was established in 1844 by a German immigrant named Henry Lehman in Montgomery, Alabama; as a shop that sold groceries and goods. Emanuel and Mayer were his younger brothers and they joined the business in 1850 (library.hbs.edu). After Henry’s death in 1855, his younger brother started to run the company. Over the decades, only family members were allowed to become partnersRead MoreLehman Brothers1021 Words   |  5 PagesLessons from Lehman Brothers: Will We Ever Learn? MGT 521 September 9, 2013 Introduction Lehman Brothers financial services filed bankruptcy on September 15, 2008, in the New York Southern District U.S. Bankruptcy Court. Resulting in an immediate 500 point drop in the Dow Jones (Did Ernst amp; Young Really Assist Financial Fraud? 2011). This day became known as ‘‘Dark Monday’’ (Donaldson, 2012). This was to date, the largest bankruptcy filing in history unleashingRead MoreThe Global Financial Crisis Of 2008-10 And Its Impact On The Financial Health Of The Institutions999 Words   |  4 Pages The Global financial crisis has been described as the worst financial crisis after the Great Depression of the 1930’s. This was a Financial Crisis and affected terribly the banks of the United States of America. The banks during this time had low capital base and suffered from a serious liquidity crunch. Leveraging was very common at this time. This increased financial instability of the banks called for major changes in the financial regulations by the government. This essay will discuss theRead MoreThe Collapse of Lehman Brothers1138 Words   |  5 Pages2008, Lehman Brothers filed for  bankruptcy. With $639 billion in assets and $619 billion in debt, Lehman s bankruptcy filing was the largest in history, as its assets far surpassed those of previous bankrupt giants such as  WorldCom  and  Enron. Lehman was the fourth-largest U.S. investment bank at the time of its collapse, with 25,000 employees worldwide. Lehman s demise also made it the largest victim, of the U.S.  subprime mortgage-induced financial crisis that swept through global financial marketsRead MoreThe Caused and Effects of Lehman Brothers Bankruptcy1974 Words   |  8 PagesThe caused and effects of Lehman Brothers bankruptcy. â€Æ' Lehman Brothers was founded in 1850 and it is a diversified investment bank provided financial services for global companies, institutions, governments and investors. Lehman Brothers was one of the most powerful stock and bond underwriters and dealers in the world, and it also as the fourth largest investment bank in the United States before. Because of widely recognized to Lehman’s operational capacity, the company had many world-renowned

Inclusion Through Universal Design. Influence Of Japanese

Inclusion through Universal Design: Influence of Japanese Monozukuri in Accessible Design He swings left to right, growing more agitated with each passing second and then abruptly stops. Looking overwhelmed and defeated, he appears to have given up on his cause. Approaching cautiously, I ask if I may offer my assistance and he gladly accepts. Hand in hand we cross the dangerously busy intersection and part ways. As I cross back, I recall my professor’s lectures on the pervasiveness of bad design within society. The bad design of the inaccessible crosswalk for the visually impaired man continues to linger in my mind. Three months later, I find myself in Japan observing the empowerment of their society through the use of universal design.†¦show more content†¦This mindset brings innovative and universal design solutions across Japan. Toyota also states that â€Å"in Monozukuri, workers ‘bring their mind to work’ and are fully empowered and trained to deal with different situations creating an elevated sense of ownership†. (SA Partners, 3 ) In my observations, monozukuri acts as both a pre/post step within the design process. While in Japan, I observed monozukuri in many places, but its use in accessible design stands out to me. The lack of accessible products is a global issue that is often given little attention. Lack of accessible design limits the autonomy that lesser abled persons have with their surroundings. Enter the concept of accessible design, which aims to ensure that products and environments are made suitable for a diversity of people with various ages or physical and mental ability. Monozukuri influences accessible design as its foundation is created from increasing awareness of the environment and community. Japan seamlessly integrates accessible design, lessening societal obstacles for people who need these accommodations. For instance, take a hazard like a busy crosswalk. In Japan, crosswalks use both visual and auditory cues to tell when it is safe to cross. (Guidelines for Accessible Pedestrian Signals) The crosswalk in Shibuya (Figure 1) and Shinagawa emitted loud bird like chirping whenever it was time to cross. Intrigued, I attempted to cross with my eyes close usingShow MoreRelatedMultinational Corporations4554 Words   |  19 Pagesproducts in its native country and manufactures them abroad, often in Third World nations, thus gaining trade advantages and economies of labor and materials. Almost all the largest multinational firms are American, Japanese, or West European. Such corporations have had worldwide influence—over other business entities and even over governments, many of which have imposed controls on them. 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Broken Windows Theory Free Essays

What Impact has the Broken-windows Theory had on Policing? What about the Future? 02/18/2010 Question Response pg. 118 Broken-windows theory is the thought that when low levels of crime and disorder and deviance are not held in check, then more serious crime is likely to follow (Roberg, Novak, Cordner pg. 102). We will write a custom essay sample on Broken Windows Theory or any similar topic only for you Order Now It was a theory proposed by J. Q. Wilson and Kelling in 1982. The broken-windows theory has had an effect on policing in the past, and will play a role in how policing is done in the future. First let’s look at how the broken-windows theory has impacted policing in the past. Broken-windows theory suggested a way of thinking in the community. Citizens felt safer when police departments conducted more foot patrols in the neighborhood, and felt the police were more aware of the crime that occurred. As time progressed into the adaptation of the motorized patrol, some people felt that the police had lost touch with the community and were not aware of the small underlying issues of the bigger crimes that occurred (pg. 66). Through the theory of broken-windows, a zero-tolerance style of policing was developed. Some police departments, such as New York, implemented the zero tolerance style and claimed that it lowered their crime rates in the mid 1990’s (pg. 103). The police became more arrest oriented and focused on a more aggressive approach to crime control. They would increase their traffic citations, arrests, and increase their contacts with citizens. However, one of the issues with the zero tolerance style of policing is that it can cause some undue harm to citizens. By being to aggressive, it leads officers to become more suspicious of some people even though they may not deserve it, and can to lead to false arrests or abuse (pg. 04). In conclusion, the broken-windows theory has created the zero tolerance style of policing, and has lead some citizens to believe that the police are not in touch with their neighborhood due to the lack of foot patrol. As cities continue to grow and expand, most police departments will not have the resources to devote some offices to foot patrol, w hile having others in vehicles to respond to other calls for service in other areas. Therefore under the broken-windows theory, departments will have to address the issue of the community not feeling safe without foot patrols. Also, understanding that if minor crime is not addressed, the potential for larger crime may follow; this will lead departments to find new strategies to address these issues. Departments will look to work with the community (community policing) in an effort to resolve the issues without delay (zero tolerance). Broken-windows theory has affected the way police departments operate since it was developed, and only through new and creative strategies can it be correctly implemented. Reference: Roberg, R. , Novak, K. , Cordner, G. (2009). Police society. Oxford, New York: Oxford University Press. How to cite Broken Windows Theory, Papers Broken Windows Theory Free Essays The notion that serious crime is stemmed from minor disorders and fear of crime was a well-developed hypothesis in the 1980s by James Q. Wilson and George Kelling (Hinkle Weisburd, 2006). Wilson and Kelling (1982) had coined this theory as â€Å"broken windows†. We will write a custom essay sample on Broken Windows Theory or any similar topic only for you Order Now Broken windows theory states that disorder in a society causes the residents of the society to develop fear (Hinkle Weisburd, 2008). The authors go on to state that fear is the fueling source behind delinquent behavior, which resulted in higher rates of serious crimes (2008). The main concept of this theory illustrated that if police were to target and eliminate minor disorders through community policing, it would have an overall impact on the reduction of crime rates (Gau Pratt, 2008). Broken windows theory was not accepted by all, in fact it sparked a great deal of controversy (Wilson Kelling, 1982). The opposing views of broken windows theory argued that it was too weak because of the lack thereof empirical evidence proving the correlation between implementation of broken windows policing methods and decrease in crime (Harcourt, 1998). The purpose of this essay was to compare and contrast the two different perspectives on the broken windows theory. This paper shall also conclude whether the broken windows theory can be successfully used within a community policing model. In my opinion the broken windows theory had enough substantial groundwork presented that it was successfully used within community policing. To begin, according to Clyde Cronkhite (2004) the theory was true. Cronkhite connects â€Å"disorder and crime as part of a developmental sequence† (2008, p. 46). The main concept that Kelling and Wilson stated, was that if small minor disorders such as littering, public drinking, graffiti etc. were tolerated in a society than it would spiral out creating more serious crimes (Cronkhite, 2004). Cronkhite (2004) gave reasoning behind their theory stating that serious crimes stem from criminals assuming that once there was social acceptance of minor delinquent behaviors, the community became vulnerable and were less likely to act against such behaviors. Broken windows entails a process whereby unchecked visible disorder signals to residents that community lacks social control. This assumption is that the law-abiding citizens and the criminal alike are attuned to this signal† (Gau Pratt, 2008, p. 164). Gau and Pratt (2008) gave an explanation as to why criminals tend to flood the streets when minor disorders are present in society. The authors reasoned that it is because the general public sought shelter or safety off of the streets which in turn allowed criminals to occupy the area (Wilson Kelling, as cited in Gau Pratt, 2008). From personal experience in third year of University I attended a midnight street walk of downtown Toronto, which allowed me to draw on the same conclusions as Gua and Pratt. During the street walk it was clear that certain geographical areas provided an outlet for further crime to exist based on social senses, such as Regent Park. Also, based on physical evidence that remained on George St in front of Seaton House; needles on the floor, graffiti on the walls and empty alcohol bottles not only concluded that this area was a favorable environment for crime, but that indeed some form of illegal acts had occurred. Furthermore, Gua and Pratt (2010) discussed how the perceptions of disorder in a community instilled fear into its members and how fear created social disengagement from the community. The broken windows perspective outlined the cognitive thought behind what individuals viewed as disorders (Cronkhite, 2004). In other words, disorder was always in the eye of the beholder, which in this case was the community. The way the community interpreted the delinquent behavior for example littering, determined whether the community was going to reject or accept it into their societal values. Based on the community’s decision we must consider an outsider’s perspective on such behavior as well. James McCabe (2008) goes on to talk about how it was not the physical aspect of the act (litter in itself) but rather the symbolism it created that lead to increase in crime. McCabe also stated that if individuals saw littering as a threat to social order, this threat would no longer be overlooked or considered unimportant, instead littering would be viewed as a key catalyst to a chain of negligent behavior (2008). Fear was a result of the negligent behavior, fear also generated attachment to the visible characteristics of delinquency, helping outsiders derive a negative stigma about a community (J. Irwin, personal communication, Oct 3rd, 2012). Tepperman and Curtis (2011), provided an explanation as to why crime occurs based on the social functionalist approach coined by Emile Durkheim â€Å"in order to have a well-functioning society it requires values, cohesion and social control† (p. 19). This theory was based on the principal that social problems are socially created (Tepperman and Curtis, 2011), the social functionalist approach supported the original work on the broken windows theory, which stated that minor disorders are classified and looked at based on individual perception (source). Structural functionalist approach established that problems in a society originate from the observation of others’ consequences (Tepperman and Curtis, 2011). In this particular case the consequences of the minor delinquent acts created greater chaos. To combat the growth in crime rates in any geographical area, â€Å"broken windows philosophy entails addressing the minor problems in a community before they create conditions that welcome and/or permit more serious offences† (McCabe, 2008, p. 291). McCabe (2008) also theorized that if you were to control the disorder you could then control the crime. The outcome this theory had on police response was that it created the order maintenance policing strategy (Cronkhite, 2004). This was the gateway introduction to community based policing. Broken windows theory demanded that there be community involvement (McCabe, 2008). The positive correlation between community policing and reduction of crime rates, was not necessarily in the affects the police have on the disorder itself, but rather the sense of order being restored into the community through hands on approach (Sampson Raudenbush, 2004). When the community saw active policing, and a restored sense of community, people began to feel safer within society and were more inclined to help with community restoration initiatives (McCabe, 2008). The order maintenance strategy operated based on a community policing model, which is known as The Ontario Association of Chief of Police (OACP) Model (G. Hanna, personal communication, Sept 26th 2012). Wilson and Kelling’s theory was based on the social science experiment of Phillip Zimbardo, who had studied the snowballing effect on vandalism at the Stanford University Campus parking lot New York City in 1969, once a vacant car was left unattended to (McCabe, 2008). Kelling and Wilson (1982), indicated that disorder and crime have a strong positive correlation based on the yielded results from Zimbardo’s experiment. The first to implement the order maintenance approach was the New York Transit Authority (NYTA) (Corman Mocan, 2005). The NYTA tackled the Subway vandalism problem head on, they eliminated graffiti, and arrested those who tried to cheat the subway fare system (Corman Mocan, 2005). Bratton the main leader in organizing the initiative, stated that the theory was accurate (Corman Mocan, 2005). Bratton went on to explain that there was a dramatic drop in rime rates committed in the subways following this approach, thus backing up the broken windows theory (date). After realizing the positive results of aggressive order maintenance strategy, the broken windows theory was then put to the test by the NYPD (Corman Mocan, 2005). The NYPD were also only reaping the benefits from this decision. Deploying this strategy had an impact o n the offender’s belief that the risk of apprehension was high, thus the NYPD sent a clear message to the community that law and order prevail over petty and serious crimes (Sampson Cohen, 1988). Immediately after the implementation of order maintenance, NYPD saw significantly decreasing numbers in serious crimes such as homicide, robbery and rape (Corman Mocan, 2005), the city ended up reaching its all-time low. Kelling in his later work wrote, â€Å"Both experience and substantial formal research demonstrated that disorder left untended ultimately leads to serious crime†¦ Fighting disorder, by solving the problems that cause it, is clearly one the best ways to fight serious crime, reduce fear, and give citizens what they actually want from the police force†. Kelling 1999, p. 29 as cited in Gau Pratt, 2008, p. 167). Another Dutch researchers conducted an experiment that revealed how visible social disorder increased an individual`s temptation to indulge in delinquent behaviour (Kaplan, 2008). A Dutch researcher, Keizer tested this theory by; â€Å"placing an envelope containing a 5 euro-note hanging from a mailbox†¦ when the mailbox was clean, 13 percent of passers-by stole the envelope. When the mailbox was surrounded by trash, the percentage jumped to 25 percent, and then 27 percent when it was covered by graffiti. (Kaplan, 2008, p. 1). It was evident that the presence of litter (minor disorder) increased the rate of crime double fold. This Netherland experiment bolstered the broken windows theory (Kaplan, 2008). On the contrary, these results fueled the debate of whether the broken windows theory was the driving force behind crime reduction in the area. While researchers tried to determine the root causes to a particular crime, the macro-social approach shed light on crime originating from â€Å"poverty, unemployment, racism, class conflict, etc. † (McCabe, 2008, p. 92) Kennedy and Moore (1995) believed that the police did not have direct impact on these crime causing issues, therefore no direct impact on crime. Harcourt was the main author to challenge the broken windows theory. He scrutinized the theory as well as the da ta gathered by author Skogan, statingthat although there were several measures of serious crime (assault, sexual assault, and burglary) available in Skogan’s research, he only disclosed the findings on crime correlated to robbery (Harcourt, 1998). This made Skogan’s work discreditable and biased. Another reason why broken windows was said to be invalid is due to people`s perceptions on the relationship between crime and disorder; whether or not they are separate entities (Corman Mocan, 2005). â€Å"If disorder and crime seem to be different in the eyes of neighborhood residents, then order maintenance policing may have a fighting chance at crime reduction. If however, the two phenomena merge into one in the minds of those residents, then broken windows theory and its accompanying order maintenance policing strategies will need to be rethought. (Gau Pratt, 2008, p. 170). Furthermore, the main concept of broken windows theory was attacked. The idea that if disorder is not found frightening, citizens remain on the streets, therefore streets are not being opened to criminals, thus criminal behaviour would not take place (Hinkle Weisburd, 2006). Interestingly, the studies conducted against the theory have not given much attention to the relationship between disorder and fear, which was surprising given its importance in the model. (Hinkle Weisburd, 2006). Studies based on broken windows are too inconsistent to be able to draw a definite line as to whether or not the theory was accurate and the possibility of integration into community policing. Researchers have stated that there are statistically better predictions of crime such as community stability and collective efficacy of the neighborhood, therefore police should not focus their time into â€Å"fixing† the broken windows theory but rather dedicate their time to other predictors (Weisburd Braga, 2007). Consequently, if police were to dedicate their time on the other factors rather than on minor disorders there would be less objectivity in regards to police involvement (Weisburd Braga, 2007). The authors point out that although all individuals would be in favour of collective efficacy, it was hard to address and improve upon (2007). Making it easier said than done. These other statistical predictors of crime were rational and helpful in regards determining all possible causes of crime, but they were far too ambiguous of concepts to be solved through practice (Weisburd Braga, 2007). Thus broken windows theory was a practical option, it was applicable to any community and it was able to be implemented quickly. According to the OACP Model order maintenance policing would be considered as part of the community mobilization and crime prevention sector. This sector allows the police to take charge and impact minor disorders preventing future crime while encouraging community members to get involved, thus transitioning toward safer communities and to the ultimate goal of low need for police assistance (G. Hanna, personal communication, Sept 11th, 2012). In conclusion, the macro-social approaches, lack thereof empirical evidence, relationship between fear and disorder as well as perceptions on social disorders were the critiques made against the broken windows theory. Despite these critiques, the theory proved to be true through real life application. Therefore I draw to the conclusion that it was and continues to be successfully incorporated into the current policing model. If police services in Ontario dedicate more time to target the social disorders visible in our communities, they will help build positive relations in the community. By restoring order in our communities we are another step closer to eradicating serious crimes (Wilson Kelling, 1982). References Corman, H. , Mocan, N. (2005, April). Carrots, sticks, and broken windows. Journal of Law and Economics, 48(1), 235-266. doi:10. 1086/425594 Cronkhite, C. (2004, March 1). Illusions of order: The false promise of broken windows policing (Book). Criminal Justice Review (Georgia State University), 29(1), 245-248. Retrieved October 1, 2012, from http://web. ebscohost. com. subzero. lib. uoguelph. ca/ehost/pdfviewer/pdfviewer? id=50642dd3-c8cc-4a96-aa51-1baee6674c01%40sessionmgr114vid=1hid=107 Gau, J. M. , Pratt, T. C. (2008, May 1). Broken windows or window dressing? Citizens (in)ability to tell the difference between disorder and crime. Criminology Public Policy , 7(2), 163-194. doi:10. 1111/j. 1745-9133. 2008. 00500. x Gau, J. M. , Pratt, T. C. (2010, August). Revisiting broken windows theory: Examining the sources of the discriminant validity of perce ived disorder and crime. Journal of Criminal Justice, 38(4), 758-766. Retrieved October 1, 2012, from How to cite Broken Windows Theory, Essay examples

Business Economics Sole Supplier in Imdustry

Question: Describe about the Business Economics for Sole Supplier in Imdustry. Answer: Introduction: A monopolist is the sole supplier of the product in the industry. It regulates price. It either decides price or output. There is no supply curve in such kind of a market structure. It is in hands of the sole supplier to regulate how much output it wants to produce and sell it in the market. However, pricing of such products are guided by the fundamental MR-MC rule. That is, price is settled at a point where MR is maximal. Profit maximization is at that level of output where MR is equal to MC. Thus, corresponding price is the equilibrium price and corresponding output is the equilibrium quantity (Parkin,2013). Analysis: a). A seller would charge lower prices of its product only when he is aware that the price elasticity of the demand of its product is very high. In this case, the seller is very much aware of the fact that any downward movement in the price is very much likely to have a positive effect on the quantity demand. Moreover, due to the given downward sloping nature of the demand curve, it will be able to send more at a lower price and vice versa. It would continue to produce upto a point where MR=MC. Below diagram (left side) depicts the same scenario where the elasticity of demand is very high. A seller charges lower price and offers greater quantity. b). A monopolists seller would increase the price of its product when that there is no availability of any close substitute for the product it sells . This makes the demand for its product to be greatly inelastic. Hence, there will be a smaller reduction in the demand of the product on the account of the increase in the price. (Mankiw, 2007). Below diagram (right side) depicts the same scenario where the elasticity of demand is very low. A seller charges higher price and offers lesser quantity. Conclusion: Thus, price elasticity of demand plays a vital role in determining how much price or quantity would be offered to the buyer. Question 2). Introduction: ` A theory of comparative advantage states that there will be an overall rise in the economic welfare if both countries engage themselves in trade by trading and specializing in that commodity whose opportunity cost is low. Analysis: A statement that a country would flourish without trade is completely false. A country in isolation would be producing both goods- efficient as well as inefficient ones. However, if such country engages in trade, specializes in producing efficient commodity and imports a good where the cost of producing is relatively high, then it would produce more output and earn extra income. For example, France, in isolation would produce 29 units of both goods and China would produce 25 units of both goods. After entering into trade and specializing in the efficient commodity where the opportunity cost is low, both countries would produce more (Parkin,2013). For example, consider the following table where the opportunity cost for producing 1 unit of mobilephones is 1.9 units for France. For China, the opportunity cost for producing 1 unit of mobile phones is 1.08 units. Thus, China has comparative advantage in producing mobile phones because it has lower opportunity cost. France has comparative advantage in producing cheese due to lower opportunity cost. Mobile phones Cheese France 10 19 China 12 13 Total 22 32 Conclusion: Hence, because of the existence of the constant returns to scale, both countries specialize (France in cheese and China in Mobile phones) in producing a product which increases after specialization. That is, China will be producing 24 units of wine instead of total 22 units of production and France will now produce 38 units of cheese instead of 32 total units (Mankiw, 2007). References: Mankiw , G 2007,Economics: Principles and Applications, 4th edition South Western, Cengage Learning India Private Limited. Parkin, M 2013,Microeconomics, 11thedition, Prentice Hall.