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Unformatted text preview: 12/7/2009 1 International Trade International Trade Â¡ Why people benefit from international trade Â¡ increased competition Â¡ reduced costs Â¡ specialization Â¡ Gains outweigh losses Â¡ Consumers gain from lower prices and increased 28 Â¡ Consumers gain from lower prices and increased variety Â¡ Entrepreneurs and workers in industries that expand because of trade realize higher rents and wages Â¡ Entrepreneurs and workers in industries that contract because of competition lose profits and jobs Â¡ Key: find ways to compensate the losers No Trade No Trade Â¡ Country Aâ€™s PPF Â¡ 0 Clothes and 400 Food 28 Food 400 Country Aâ€™s Output Per Worker Food Clothes Country A Country B 4 1 2 1 Population # of Workers 100 150 Â¡ 200 Clothes and 0 Food Clothes 200 PPF Â¡ linear combination of (200,0) and (0,400) 50 300 Â¡ Country Bâ€™s PPF Â¡ 0 Clothes and 150 Food No Trade No Trade 28 Country Bâ€™s Food Output Per Worker Food Clothes Country A Country B 4 1 2 1 Population # of Workers 100 150 Â¡ 150 Clothes and 0 Food Country B s PPF Clothes 150 150 Â¡ linear combination of (150,0) and (0,150) 75 75 Output Per Worker Food Clothes Country A Country B 4 1 2 1 Trade Trade Â¡ absolute advantage Â¡ a country is more efficient in producing a good in comparison with another country...
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This note was uploaded on 03/21/2010 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.
- Fall '08