ch34 - Chapter 34 International Trade and Comparative...

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Unformatted text preview: Chapter 34 International Trade and Comparative Advantage No nation was ever ruined by trade. BENJAMI N FRANKLI N Labor costs in industrialized countries as a percentage of U.S. labor costs Table 1 2 1975 2005 France United Kingdom Spain Japan South Korea Taiwan Mexico Canada 73% 54 41 48 5 6 24 99 104% 109 75 92 57 27 11 101 Why Trade? Countries differences: Resources Distributed unequally across planet Natural endowments Climate, terrain Skills of labor force Specialization in production 3 Why Trade? Specialization, country Devotes energies & resources Small proportion of worlds productive activities Trade To exploit advantages of specialization Voluntary exchange Everybody gains 4 Trade is a win-win situation Voluntary exchange / trade Redistribute products Both parties gain Hold more preferred combinations of goods Than they held before Applies to Nations Individuals 5 International vs. Intranational Trade Intranational trade Gain from specialization and free trade 50 states of U.S. Single national government Same currency ($) Labor & capital mobility 6 International vs. Intranational Trade International trade Gain from specialization and free trade Political factors Different governments Many currencies Impediments to labor & capital mobility Immigration quotas Restricted employment to foreigners Foreign investment - risk 7 The Law of Comparative Advantage Absolute advantage One country over another Produce a good Use smaller quantities of resources Comparative advantage One country - over another Production of particular good Relative to other goods Less inefficiently 8 Principle of comparative advantage David Ricardo (17721823) Classical economist Countries - gain from trade Even if one is more efficient...
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This note was uploaded on 03/14/2011 for the course ECON 101 taught by Professor Dieter during the Spring '11 term at Rio Hondo College.

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ch34 - Chapter 34 International Trade and Comparative...

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