ECN 203 (18), Trade Policy - Chapter 18: Trade Policy This...

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Chapter 18: Trade Policy This chapter covers Trade Policy -- measures to alter International Trade : exports (X), imports (M), and net exports, or the Balance of Trade (X-M). To some extent, trade policy is used to stabilize the economy (changes in net exports shift the AD curve).
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Why Do Countries Trade? More conceptual issue -- using trade to make world resources be allocated more efficiently. People of different countries trade because they both stand to benefit from the deal.
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Absolute Advantage Absolute Advantage -- each country has an advantage in producing one good. Therefore, they produce a surplus of the advantaged good, and trade for the “other good”. Intuitive but overly restrictive.
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The Theorem of Comparative Advantage Theorem of Comparative Advantage -- Consider the different economies of two nations. Then there exists an efficient trade agreement that will benefit both nations . This holds even if one nation has an absolute advantage in all goods .
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The Production Possibility Curve The Production Possibility Curve -- a graph of possible outputs of two
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ECN 203 (18), Trade Policy - Chapter 18: Trade Policy This...

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