11.24.08 - ECONOMICS 1 Professor Kenneth Train 11/24/08...

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ECONOMICS 1 Professor Kenneth Train 11/24/08 Lecture 25 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. ANNOUNCEMENTS Class cancelled Wednesday, November 26 . Problem Set 5 due in the second section meeting the week of December 1 . LECTURE How are we all doing today? How many of you have heard that a Berkeley Economics professor was chosen as Obama’s chief Economic Adviser? Christina Romer. TRADE Today we’re talking about trade. We’re going to have imports and exports added to our economy. When we first started talking about our economy, we started with no government, prices fixed, no imports or exports; now we’ve added government and interest rates, so today we’re talking about trade. I want to talk in general terms about the benefits of trade, and convince you that it is beneficial for all parties involved in it. Next lecture we’ll put it in the picture of macroeconomics. Trade benefits everyone I understand a lot of people feel strongly about the issue of trade, that we are hurting other countries by trading with them or that they are hurting us. I hope to convince you that no one is getting hurt; trade benefits everyone. Economics is quite clear on this concept; however, I would like you all to listen to what I say first. If you have any problems with it, you can raise your hand and say what you want. Hopefully, this will make sense to you and you will see that we should have more trade rather than less. ABSOLUTE ADVANTAGE The easiest way to think about benefits from trade is when there’s a simple situation. This way anyone can see that there’s benefit from trade. Absolute advantage is when a country can produce a good more cheaply than another. That country has an absolute advantage over the other for that good. An example of Absolute Advantage For example, with one acre, one tractor and two workers, the US can produce 100 bushels of wheat. NZ has less good wheat-growing land, so the US has an absolute advantage over them when it comes to growing wheat. Specialization enables benefits from trade You can imagine that if two countries have mutual absolute advantages, both countries benefit from trade. Both countries can benefit by specializing in the good that they can produce more cheaply. So in this case, the US would produce more wheat and
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ECONOMICS 1 ASUC Lecture Notes Online: Approved by the UC Board of Regents 11/6/08 D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. 2
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This note was uploaded on 07/25/2011 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at University of California, Berkeley.

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11.24.08 - ECONOMICS 1 Professor Kenneth Train 11/24/08...

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