Chapter 9 - Chapter 9-Trade. U.S. #1 export: Planes #1: o...

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Chapter 9—Trade. U.S. #1 export: Planes #1: o Assumption: we are price-takers in this market. o The world price is a perfectly elastic demand curve because when the world price is greater than the domestic price without trade, we have a comparative advantage. o When we export, we will produce more planes here domestically and sell those off to the rest of the world. o We will produce Law of One Price: No transportation prices. o The higher price will reduce the domestic quantity demanded. o Consumers are worse off because of exports. o There are more jobs because the amount of production goes up. This model includes not only opportunity costs, but also marginal benefits. o It shows us that for everyone as a whole, trade is a good thing. o Trade hurts some people but benefits the total population. #2: o In this case, the world has the comparative advantage. o If we start trading with the rest of the world, the price will drop to the world price. o In this case, we will import. o
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This note was uploaded on 04/24/2009 for the course ECON 2105h taught by Professor Staff during the Spring '08 term at University of Georgia Athens.

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Chapter 9 - Chapter 9-Trade. U.S. #1 export: Planes #1: o...

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