EC 151 Ch 3

EC 151 Ch 3 - EC 151 Ch: 3 Interdependence and the gains...

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Unformatted text preview: EC 151 Ch: 3 Interdependence and the gains from trade A parable for the modern Economy The principle of comparative advantage Applications of comparative advantage A parable for the modern Economy Interdependence = trade Production possibilities Specialization & trade The principle of comparative advantage Absolute advantage: the comparison among producers of a good according to their productivity Opportunity cost: whatever must be given up to obtain some item Comparative advantage: the comparison among producers of a good according to their opportunity cost Comparative advantage & trade: Trade can benefit everyone in society because it allows people to specialize in activities in which they have comparative advantage Applications of comparative advantage Example: Should US trade with other countries? - imports - exports ...
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