Macro17 - Chapter 17 International Trade and Comparative...

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Chapter 17: International Trade and Comparative Avantage Why Trade? To exploit the advantages of specialization : a country devotes its energies and resources to only a small proportion of the world’s productive activities Every country lacks some vita resources that it can get only by trading with others. Each country’s climate, labor force, and other endowments make it a relatively efficient producer of some goods and an inefficient producer of other goods. Specialization permits larger outputs and can therefore offer economies of large-scale production. o Mutual Gains From Trade Trade is a win-win situation. Both parties must expect to gain from any voluntary exchange . Trade brings about mutual gains by redistributing products so that both parties end up holding more preferred combinations of goods than they held before. International Versus Intranational Trade Why do we study international trade as a special subject when basic reasons for trade are equally appliciable w/I a country or among? o Political Factors in International Trade The use nad misuse of political impediments to internation trade. o The Many Currencies Involved in Internation Trade Rates of exchange and their variability o Impediments to Mobility of Labor and Capital Harder to move labor and capital to other countries. The Law of Comparative Advantage Absolute advantage : when one country can produce a particular good using smaller quantities of resources than can the other country o Exists even if the other country is more efficient in producing everything Comparative advantage : when one country can produce a particular good less inefficiently as compared with the other country. o The Arithmetic of Comparative Advantage When every country does what it can do best, all countries can benefit bc more of every commodity can be produced without increasing the amounts of labor and other resources used.
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