Online lecture notes

Online lecture notes - MACRO Monday January 31, 2011...

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MACRO Monday January 31, 2011 Chapter 2 -after trade, both countries consume outside their PPFs, which illustrates the gains from trade NOTE: basis for trade is comparative advantage, not absolute advantage -differences in opp costs create comparative advantage, and specialization in trade based on comparative advantage create gains for both participants, whether they are indiv, firms, or countries -differences in opp cost may be based on differences in ability, climate, natural resources, laws, the relative abundance of labor and capital, and/or technology -the gains from trade are not always equally distributed between the participants -both countries can gain, doesn’t have to be equally -not EVERY indiv gains from trade in that country, but country WILL gain from trade -expanding vs contracting industries -while trade based on comparative advantage can lead to gains, it does not always do so because of trade restrictions (tariffs) that reduce or eliminate the gains from trade -most econ are in favor of FREE trade -trade is carried out in markets MARKET: group of buyer and sellers of a service in an environment in which they trade (read and take notes on “the market system”) Chapter 3 -the model of demand and supply explains how prices are determined in a market system -this model assumes that the market being analyzed is a PERFECTLY COMPETITIVE MARKET: a market that meets 3 conditions: 1. many buyers and sellers 2. all firms are selling identical products 3. no barriers to new firms entering markets
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-even with this unrealistic assumption, the model of demand and supply has proven to be useful in predicting changes in quantities and prices in many markets DEMAND: quantity of a good or service that you are willing and able to purchase at a certain price -most important factor affecting consumer demand is the price QUANTITY DEMANDED: the amount of a good or service that a consumer is willing and able to purchase at a certain price MARKET DEMAND: demand by all consumers of a good or service
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This note was uploaded on 07/04/2011 for the course ECON 302 taught by Professor Teague during the Spring '11 term at University of Iowa.

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Online lecture notes - MACRO Monday January 31, 2011...

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