Chapter 3 - Introduction Comparative advantage and the...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Comparative advantage and Comparative advantage and the Production Possibilities the Production Possibilities Frontier Frontier Tutional Tutional BBA BBA International Economics. International Economics. 2 Introduction • International trade is driven by the existence of difference prices of goods in difference countries. • Why are the price difference? • Absolute advantage Î Some countries can produce goods at a lower price because labor in that country is more productive in producing that particular good. • Comparative advantage Î Country have a comparative advantage in the production of goods where the opportunity cost of producing those good is low. • However, we made an assumption in Ch2 that is not always realistic. 3 PPF and Constant Costs PPF shows the various combinations of two goods that a country can produce when all of a country’s resources are fully employed and used in their most efficient manner. • By efficiency, we mean that the economy is producing a given mix of goods at the least cost given the current state of technology. Constant costs : the amount of a good, assumed to be unchanging, that a country must forego to produce each additional unit of another good. 4 PPF and Constant Costs • Recall the table from Ch2. 10 M 50 C Gains from specialization and trade 40 M 100 C 50 M 150 C Domestic production and consumption without trade 50 M 100 C 50 M 200 C Consumption with trade 0 M 300 C 100 M 0 C Q at full employment India U.S.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
5 Production and Consumption with Specialization and Trade. U.S. Point B represent . .. • Point C represent . .. • The negative slope shows that both countries must give up machine to increase cloth, and vice versa. MRT =
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/13/2010 for the course INTER BUS IB121 taught by Professor Miko during the Spring '10 term at UC Riverside.

Page1 / 6

Chapter 3 - Introduction Comparative advantage and the...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online