Outline- International Trade

Outline- International Trade - INTERNATIONAL TRADE...

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INTERNATIONAL TRADE Historical dimension of international trade: it has existed for a long time Modern theories of trade: Adam Smith and Ricardo Adam Smith- illustrates the advantages of free trade and specialization when countries enjoy an absolute advantage. The Absolut e Advant age of Free Trade - Sm it h 150 200 USA 250 100 Britain Iron (tons) Wheat (tons) Per worker production Wheat Iron Wheat Iron Britain , 10 000 , 25 000 , 50 000 USA , 20 000 , 15 000 , 40 000 Total Output , 30 000 , 40 000 , 40 000 , 50 000 Production per workers 200 Split workers / 5050 Specialize Opportunity costs: Price of ton of wheat in UK = . tons of Iron 2 5 Price of ton of wheat in US = . tons of Iron 75 Why Trade? •To get tons of wheat in the UK 4 give up tons of iron. 10 •If there is trade with the US, for tons of iron the UK can bu 10 y . tons of wheat. 13 33 Thus, it should specialize and trade! (earning . tons of wheat 9 3 for every tons of iron) 10 World Benefits too – Both production of wheat and iron increase by
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This note was uploaded on 07/08/2010 for the course POL 208 taught by Professor Wong during the Fall '08 term at University of Toronto- Toronto.

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Outline- International Trade - INTERNATIONAL TRADE...

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