7 Friday, September 8, 2006

7 Friday, September 8, 2006 - Friday, September 08, 2006...

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Friday, September 08, 2006 Microeconomics Example 1 Country Wine per Hour Cloth per Hour Portugal 8 bottles/hr 6 yrds/hr England 4 bottles/hr 5 yrds/hr Portugal England Wine/hr Wine/hr 8 4 6 Cloth/hr 5 Cloth/hr Portugal has absolute advantage in both goods Opportunity cost Portugal England Each bottle of wine ¾ yrd of cloth 5/4 yrds of cloth Each yard of cloth 4/3 bottles of wine 4/5 bottles of wine Portugal has comparative advantage in wine England has comparative advantage in cloth Portugal must get more than ¾ of a yard of cloth for each bottle of wine it sends to England England must get 4/5 bottles of wine for each yard of cloth it sends to Portugal A feasible term of trade is one such that each country can trade occurring to the terms and receive more for 1 unity of the good it specializes in the self-sufficiency would yield
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Unformatted text preview: Friday, September 08, 2006 Portugal England Wine/hr Wine/hr 8 New CPF New CPF 5 4 5 6 8 Cloth/hr 5 Cloth/hr The terms of trade = 1 bottle of wine = 1 yrd of cloth Example 2 Malaysia Philippines Rubber Rubber Ton/yr Ton/yr 30 10 20 Steel 40 Steel Ton/hr Ton/hr Opportunity Costs Malaysia Philippines 1 ton of Rubber 2/3 tons of steel 4 tons of steel 1 ton of steel 3/2 tons of rubber tons of rubber Malaysia has comparative advantage in rubber Philippines has a comparative advantage in steel Malaysia has got to get more than 2/3 tons of steel for each ton of rubber Philippines has got to get more than ton of rubber for each ton of steel...
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7 Friday, September 8, 2006 - Friday, September 08, 2006...

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