11-21 Economic lifetime. Over recent years an increasing number of machines that are economically outdated in Western Europe are being sold to companies in developing countries, which are able to produce and sell profitable products with these machines without government subsidies, which are competitive in the global market.

Question

1. How can you explain this economic outdating paradox?

Answer 1

The economic outdating paradox occurs when a machinery or equipment becomes economically outdated in developed countries due to advancements in technology, efficiency and productivity, but remains profitable in developing countries where they may not have access to the latest technology and infrastructure. This can be because the cost of new machinery or equipment is high in developing countries and the labor cost is relatively low. Therefore, companies in developing countries can still use these outdated machines to produce goods that are competitive in the global market, without needing government subsidies. Additionally, developing countries may have a lower cost of living and lower labor costs, making the operation of the machine more profitable than in developed countries. Hence, there is a growing trend of selling such outdated machinery to developing countries.