econ434notes9d

econ434notes9d - Ricardo continued Example of gains from...

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Ricardo continued Example of gains from trade: Two countries: Alaska and Brazil. Alaska Polar Bear Rugs (PBR) Initial PBR to coffee ratio = 10:1 10 1 10 Coffee Brazil Initial PBR to coffee ratio = 1:10. 1 10 PBR D D S
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Coffee In Brazil if the price of coffee goes up, the price of PBRs goes down. The line farthest to the right in the first diagram is the consumption possibilities frontier, a situation resulting from trade that allows more consumption of both consumer goods. Gains from trade 1. Comparative static Total gains from trade outweigh losses because society as a whole can consume more of both goods. 2. Uniqueness: gain from items that could not be produced locally in a country. 3. Dynamic gains: Income a) Y ↑ → S ↑ → I ↑ → K ↑ →Y↑ b) Transfer of technology across borders. c) Education: comparative advantage of education in a country can be exported around the world. d) Economies of scale and scope: example: pharmaceutical companies will to
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econ434notes9d - Ricardo continued Example of gains from...

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