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Unformatted text preview: advantage and decreases production of good for which it has a comparative disadvantage. 27 Example: US produces 4 more wheat, 2 less sheep. Iceland produces 2 more sheep, 2 less wheat. US gives 3 wheat to Iceland. Iceland gives 2 sheep to US. US is better off: 1 extra wheat. Iceland is better off: 1 extra wheat. 33 Example: Mexico can produce clothes 50% cheaper than US. Mexico can produce radios 25% cheaper than US. Mexico has absolute advantage in both goods. Mexico has comparative advantage in clothes. US has comparative advantage in radios. Both countries will benefit if US specializes in radios and Mexico specializes in clothes. 34 Trade barriers: Tariffs Export subsidies Quotas 39 Reasons often cited to place trade barriers and why they are wrong! 1. Save jobs. 2. Protect against unfair practices by foreign companies, especially dumping. 3. National security. 4. Differences in wages, environmental regulations, and other factors. 5. Buy American...
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