23 comparative advantage Handout

23 comparative advantage Handout - International Trade u...

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1 International Trade u Why people benefit from international trade u increased competition u reduced costs u specialization No Trade u Country A’s PPF u 0 Clothes and 400 Food u 200 Clothes and 0 Food Clothes Food 200 400 Country A’s PPF u linear combination of (200,0) and (0,400) Output Per Worker Clothes Country A Country B 4 1 2 1 Population # of Workers 100 150 u Country B’s PPF u 0 Clothes and 150 Food u 150 Clothes and 0 Food No Trade Country B’s PPF Clothes 150 150 u linear combination of (150,0) and (0,150) Output Per Worker Clothes Country A Country B 4 1 2 1 Population # of Workers 100 150
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2 Output Per Worker Food Clothes Country A Country B 4 1 2 1 Trade u absolute advantage u a country is more efficient in producing a good in comparison with another country X X Output Per Worker Clothes Country A Country B 4 1 2 1 Food/Clothes 2 1 u comparative advantage u a country can produce one good more efficiently than another good in comparison with another country Trade u absolute advantage u a country is more efficient in producing a good in comparison with another country X Opportunity Cost of 1 Unit of Clothes Country A: 2 Units of Food Country B: 1 Unit of Food Output Per Worker Clothes Country A Country B 4 1 2 1 Clothes/Food 1/2 1 u comparative advantage u a country can produce one good more efficiently than
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This note was uploaded on 03/12/2010 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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23 comparative advantage Handout - International Trade u...

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