lectureAssignment11 - Introduction to Economics Source:...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Topic 11: Gains From Trade ECO 100Y Introduction to Economics Topic 11: Gains From Trade Source: LR12, LR11, Chapter 33 and skim Chapter 34; LR10, Chapter 34 and skim Chapter 35. 1 ECO 100 W.G. Wolfson Topic 11: Gains From Trade Why Does Trade Take Place? At the level of a household: Consider your own circumstances What would a “no trade” household look like? At the level of a country: Trade takes advantage of opportunities for cost efficiencies Trade increases quantities of commodities available for consumption ECO 100 W.G. Wolfson 2 1 2
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Topic 11: Gains From Trade The Standard Model (David Ricardo 1772-1823) Assumptions: 2 countries 2 goods, currently being produced by each country Constant costs Labour is the only input Ignore the exchange rate; focus on goods only No costs involved in trade (e.g. transport cost = $0) Our Version: Canada and Russia Wheat (W) and Vodka (V) 3 ECO 100 W.G. Wolfson Topic 11: Gains From Trade Absolute Advantage Canada has an absolute advantage in the production of Wheat Russia has an absolute advantage in the production of Vodka Intuition says Canada should specialize in W and Russia in V Canada then exports W (to Russia) and imports V (from Russia) Russia – vice-versa Output Per 1 Unit of L (W or V) Wheat (bushels ) Vodka (bottles) Canada 30 5 Russia 10 20 ECO 100 W.G. Wolfson 4 3 4
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 7

lectureAssignment11 - Introduction to Economics Source:...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online