Chapter 3 Notes

Chapter 3 Notes - Chapter 3 2/18/08 Trade benefits everyone...

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Chapter 3 2/18/08 Trade benefits everyone - Absolute advantage The ability to produce a good using fewer inputs (hours) than another producer. The US can produce wheat in 10 hours compared to Japan’s 20 hours. Measures the cost of a good in terms of the inputs required to produce it. Another measure of cost is opportunity cost. - Comparative advantage The ability to produce a good at a lower opportunity cost than another producer. - Differences in opportunity cost and comparative advantage create the gains from trade. - When each country specializes in the good(s) in which it has a comparative advantage, total production in all countries is high, the world’s “economic pie” is bigger, and all countries can gain from trade. 2/20/08 Markets and Competition - A market is a group of buyers and sellers of a particular product. - Market Structure: Number of participants The nature of the good that is being traded. -
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This note was uploaded on 04/17/2008 for the course ECO 201 taught by Professor Zenker during the Spring '08 term at Elon.

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Chapter 3 Notes - Chapter 3 2/18/08 Trade benefits everyone...

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