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CHAPTER 3 CLASS - 2 Exports goods produced domestically and...

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Evert day you rely on many people from around the world, most of whom you've never met, to provide you with the goods and services you enjoy A. One of the Ten Principles from Chapter 1: Trade can make people better off B. We now learn why people- and nations choose to be interdependent, and how they can gain from trade C. Countries: U.S. and Japan 1. Goods: computer and wheat 2. Resource: labor, measured in hours 3. If the country chooses to be self- sufficient a. If it trades with the other country b. We will look at how much of both goods each country produces ad consumers 4. The U.S. has enough labor to produce 500 computers, or 5,000 tons of wheat, or any combination along the PPF (without trade a country can only consumer what it produces) 5. Example D. U.S. consumers get 250 computers and 2500 tons of wheat a. Japanese consumers get 120 computers and 600 tons of wheat b. Without trade 1. We will compare consumption without trade to consumption with trade
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Unformatted text preview: 2. Exports: goods produced domestically and sold abroad. To export means to sell domestically produces goods abroad 3. Imports: goods produced abroad and sold domestically. To import means to purchase goods produced in other countries 4. Consumption with and without trade E. Absolute advantage: the ability to produce a good using fewer inputs than another producer 1. The U.S. has an absolute advantage in wheat: producing a ton of wheat uses 10 labor hours in the U.S. vs. 25 in Japan 2. If each country has an absolute advantage in one goods and specializes in that good, then both countries can gain from trade 3. Comparative advantage: he ability to produce a good at a lower opportunity cost that another producer 4. Gains come from F. Interdependence I. Class Notes Monday, January 31, 2011 12:31 PM Microeconomics Page 1...
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