Your resort is an exporter. Every out-of-town visitor who buys a lift ticket sends money into your region in exchange for a service that never leaves the mountain.
Learning objectives. After this week you can (1) explain why tourism is an export; (2) say what an exchange-rate move does to exports and imports; and (3) use opportunity cost to find comparative advantage.
Remember this: comparative advantage goes to whoever gives up less to make something, not to whoever is best at it.
1) Exports and imports
Exports don't have to leave in a box. A foreign visitor buying your ticket is a service export: money flows in, a service is sold. Your region also imports what it doesn't produce, such as fuel for groomers and plows. Exports minus imports is net exports (NX), the NX in GDP. Positive NX is a trade surplus; negative is a trade deficit.
2) Exchange rates
An exchange rate is the price of one currency in another. When your currency appreciates, your ticket costs foreign visitors more of their money, so visits soften, while imports such as fuel get cheaper. When it depreciates, foreign trips to your mountain go on sale and your export industry gains, but imported fuel costs more. A fuel spike is an adverse move in your terms of trade: what you import got dearer. Trade barriers on fuel would raise your grooming and plowing costs and shrink the gains from trade.
3) Comparative advantage
Opportunity Cost of 1 Unit of A = Units of B Given Up ÷ Units of A Gained
| Per season, could produce | Skier-days | Timber | Timber given up per skier-day |
|---|---|---|---|
| Alpine Valley | 800,000 | 200,000 | 200 ÷ 800 = 0.25 |
| Timber Flats | 300,000 | 300,000 | 300 ÷ 300 = 1.0 |
Alpine Valley gives up less timber per skier-day, so it hosts skiers and Timber Flats cuts timber. Trade leaves both with more of both goods. A region can be worse at everything and still have a comparative advantage somewhere.
4) The world price across the valley
Your report's Macro environment line prints the Competitor ticket, the price you compete against, and the Operations line shows your Market share.
Price Gap = (Rival − Yours) ÷ Rival × 100
Rival $120, your ticket after any discount $96: 24 ÷ 120 = 20% below the rival. A gap can buy share, and it costs you that discount on every ticket you sell.
Quick self-check
(a) The rival charges $110 and you charge $99. Price gap? (b) Region A gives up 0.4 timber per skier-day, Region B 0.9. Who should host skiers? (c) Your currency depreciates. What happens to imported fuel? (Answers: 10%; Region A; it costs more.)
Common mistakes
- Thinking exports are goods only. Tourism, education and software are exports too.
- Calling a strong currency simply good. It cheapens imports but taxes exports.
- Confusing comparative with absolute advantage. It is about opportunity cost.
This week in the arena
Read the Competitor ticket on two reports this week and compute your price gap on each day. Then look at your Market share on the same days. What did the gap buy you, and what did it cost in ticket revenue?