Macroeconomics Notes 2-11-08

Macroeconomics Notes 2-11-08 - Macroeconomics Notes 2/11/08...

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Macroeconomics Notes 2/11/08 - Assumptions: o 2 countries – US and Tonga o 2 commodities – apples and oranges o Constant returns to scale - US produces more apples and more oranges so it has an absolute advantage - Despite this absolute advantage it will be beneficial for both countries to trade - Assume: 1. US specializes in orange production and Tonga specializes in apple production 2. Terms of trade are 1 orange = 1.5 apples or 10 oranges = 15 apples - Free Trade o Controversial o NAFTA - Fair Trade o Trade on fair terms Price Determination (Chap. 3) - Prices determine the market - Prices are crucial in the allocation of resources by sending signals to both producers and consumers - In an imperfect market, prices are administered o An imperfect market is a market in which one or more of the five conditions are violated - Prices are determined by the interaction of the forces of demand and supply in perfectly competitive markets o Demand : amount consumers are willing and able to purchase during a specified
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Macroeconomics Notes 2-11-08 - Macroeconomics Notes 2/11/08...

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