Rec 2 - Then trade 40 MS and 30 H After USA has(20 40 and...

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ECON Rec #2 January 28, 2009 If resources aren’t equally productive, PPF is bowed out! Suppose the PPF of Canada & US for maple syrup and honey are given by: US y= -x + 50 Op cost of honey is 1 maple syrup and op cost of MS is 1 honey H MS 0 50 10 40 20 30 30 20 40 10 50 0 Canada y = -3/2 x + 60 H MS 0 60 10 45 20 30 30 15 40 0
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1. Who has comparative advantage in producing honey and maple syrup? Canada has comp adv in MS and US has it in honey 2. Suppose Canada is producing 30 honey and 15 MS and suppose US is producing 10 honey and 40 MS. Illustrate gains from specializing in a single good. USA (0, 50) and Canada (60, 0) if specializing USA with trade minus 30 H and add 40 MS Canada with trade add 30 H and minus 40 MS USA produces only honey (50) Canada produces only maple syrup (60)
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Unformatted text preview: Then trade 40 MS and 30 H After: USA has (20, 40) and Canada (30, 20) Now they are above the PPF USA used to have (10, 40) H/MS Canada used to have (30, 15) H/MS Gains from trade: US Canada Honey +10 Maple Syrup +5 There has to be a point of initial trade and what is being traded to figure out gains from trade Competitive market – no one buyer or seller can determine the price Law of demand – ceteris paribus, if price goes up, quantity demand decreases Ceteris paribus – everything being the same Demand refers to the ENTIRE line so if you are just moving on the line it is QD A change in demand – arises from a change from something other than price A change in QD – arises from a change in price...
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This note was uploaded on 09/29/2009 for the course ECON 101 taught by Professor Balaban during the Spring '07 term at UNC.

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Rec 2 - Then trade 40 MS and 30 H After USA has(20 40 and...

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