Module4Slides.ppt - Microeconomics in Modules and Economics in Modules Third Edition Krugman/Wells Module 4 Comparative Advantage and Trade What You

Module4Slides.ppt - Microeconomics in Modules and Economics...

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Krugman/Wells Microeconomics in Modules and Economics in Modules Third Edition Module 4 Comparative Advantage and Trade
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What You Will Learn What You Will Learn How trade leads to gains for an individual or an economy The difference between absolute advantage and comparative advantage How comparative advantage leads to gains from trade in the global marketplace 2 of 16 1 2 3
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Gains from Trade The key to a much better standard of living for everyone is trade. The reason we have an economy is that there are gains from trade. Gains from trade arise from specialization. 3 of 16
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Production Possibilities for Two Countries
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U.S. and Brazilian Opportunity Costs 5 of 16 U.S. Opportunity Cost Brazilian Opportunity Cost One small jet ¾ of a large jet ⅓ of a large jet One large jet 4/3 small jets 3 small jets
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Comparative Advantage and Gains from Trade
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Comparative Advantage and Gains from Trade Both countries are better off when each specializes in what it is good at and they trade. Brazil should specialize in small jets. The United States should specialize in large jets. 7 of 16
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Comparative Advantage and Gains from Trade A firm has a comparative advantage in producing a
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