5.4, a model of choice and conflict. Now I'm going to play a role model today and I'll be the CORE textbook, the person that is going to explain everything to you, and will go through the models. So let's go to our first model. I need to introduce a character: our first character is Angela. Hi Angela. ANGELA: Hello. CORE: Angela is an independent farmer. Now, independent farmers are very common throughout history: they either work on their own land or work to produce things on a land which is free, and that's the case with her. Now let's look at her production possibility frontier. If she does not work at all and have 24 hours of free time, she's not going to produce any grain, but if she works the whole 24 hours, she's going to produce 12 bushels of grain. Now this is her production possibility. Now given this, Angela, how many hours do you choose to work? ANGELA: Uhm, given this reality that I face, then I choose to work for eight hours. CORE: Eight hours. Why? ANGELA: Well, the way I think about it is that I like to have plenty of free time, but I also realize that I have to work in order to produce grain to keep me going, and when I balance these two things then I end up working for eight hours. CORE: So basically she balances economic reality with her preferences: at that hours of work, these two things match, and in the jargon of economics we call this in our model a place where the marginal rate of substitution, your preference that exists in your head, meets the marginal rate of transformation, an economic reality that exists out there. You agree with me? ANGELA: That sounds like a reasonable explanation. CORE: Thank you thank you. Now let's move on to our next stage, 5.6, allocations imposed by force. In the previous section Angela was an independent farmer and she could choose how many hours to work, but in this section we go to the exact opposite extreme: Angela is now a forced labourer and she cannot choose how many hours to work. Her hours of work are basically imposed and forced on her by a landlord. Why do we study this model? To better understand the economics of exploitation that has happened throughout history under feudalism and colonialism. In this section I introduce a new character, Bruno, who is a land owner. So let's scroll down. Now Bruno, under this condition, how do you think the landlord would behave? BRUNO: So the landowner, I think, would keep two things in mind. On the one hand, he will keep in mind how many bushels of grain Angela can produce, and on the other hand he will also keep in mind the number of bushels of grain that he needs to pay angela for Angela to survive, for Angela not to rebel. CORE: Very good. And let me just show these two elements in the grap. The red line is what Angela produces and this green curve is the minimum grain that Angela needs to survive and not to rebel against the landlord. As you can see, the more she works the more food she needs, obviously. Now, the next question is: at which point the landlord would maximize his profit? BRUNO: So that is the point basically where the difference between the number of bushels of grain that Angela can produce and the number of bushes or grain that the landowner needs to pay Angela for her to survive and not to rebel is the greatest. So he will choose an amount of hours of work such that the difference is biggest. CORE: Exactly, and if we see it in our graph that's 13 out of 13 hours of free time, or in other words that's 11 hours of work per day. At this point, you see the gap between what she can produce and the minimum that she needs is maximum, is the largest, the largest amount of exploitation happens at that point.