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# notes class 5 - SIDE NOTES Wto.org prove that both...

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SIDE NOTES Wto.org prove that both countries gain from trade, coming up with a price and quantity is not enough. Economic theory youmust use on blackboard all other sections- 1-2 pgs each criticism, analysis, or policy suggestion- the most important 2 nd question is about 1 country, 2 goods. Find PPF equation. Opp costs. 3 is for the seconde country See about international trade gains from trade GAINS FROM TRADE Technology- international trade proposes a new technology. Cheese <-> Wine opp cost ac/aw = 3 gallons of wine. (Relative price in Autarky) Techniques to prove it 1. numerical example compare relative prices pc/pw, pc*/pw*, pc/pw [FT]\ 3, 5, 4 Decision tree Home has 2 options- produce wine or produce cheese aw = 1 ac = 3 H Because the relative price of cheese is 3 and free trade price is 4, we know home will produce cheese Pc/Pw = ac/aw = 3 < pc/pw [FT] = 4 wine cheese 1 labor -> 1 gal 1 labor -> 1/3 lbs

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convert cheese to wine. 1/3 lbs * 4 gals/lbs = 4/3 (from ft price of cheese) Thus, home shoud produce no wine and only cheese] 1 labor produces how much wine?
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notes class 5 - SIDE NOTES Wto.org prove that both...

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