{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Econ 161 - Lecture 4

Econ 161 - Lecture 4 - April 7 2011 Lecture 4 c...

Info icon This preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Global Integration of Latin America Lecture 4 c Marc-Andreas Muendler University of California, San Diego April 7, 2011
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
4. Competitiveness, Comparative Advantage and the Terms of Trade Econ 161, c M. Muendler Absolute and Comparative Advantage Even if a country has an absolute advantage in all sectors, it will have a comparative advantage in some sectors (except for the un- likely case when opportunity costs happen to be equal everywhere). The consumption possibility set with free trade shows the maximum amount goods that an economy can obtain through trade. The consumption possibility set with free trade is always at least as large as the production possibility set, and generally larger. So, there are gains from trade for the country as a whole .
Image of page 2
4. Competitiveness, Comparative Advantage and the Terms of Trade Econ 161, c M. Muendler Absolute and Comparative Advantage California has an absolute advantage both in computers and roses: a * computers = 18 hrs < 60 hrs = a computers and a * roses = 10 . 8 min < 12 min = a roses Comparative advantage: Consider the opportunity costs! Opportunity costs of computers in terms of roses a computers /a roses vs. a * computers /a * roses Mexico will and should specialize in roses because a computers /a roses = 300 > 100 = a * computers /a * roses
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
4. Competitiveness, Comparative Advantage and the Terms of Trade Econ 161, c M. Muendler Measures of Competitiveness Competitiveness of an industry: Productivity (absolute advantage) Mexican rose growers: 1 /a roses = 5 roses/hr Mexican computer makers: 1 /a computers = 1 / 60 computers/hr Competitiveness of an economy: Average productivity Mexico’s competitiveness in autarky: many production mixes are pos- sible but 1 computer is worth 300 roses in any mix. So 1 /a computers = 1 / 60 computers/hr = 5 roses/hr Mexico’s competitiveness under trade: 9 million roses at 5 roses/hr
Image of page 4
4. Competitiveness, Comparative Advantage and the Terms of Trade Econ 161, c M. Muendler Labor Productivity relative to USA, Manufacturing Country 1970 1980 1990 1996 Argentina .42 .41 .55 .67 Brazil .28 .26 .29 .37 Chile .25 .24 .23 .20 Colombia .29 .25 .37 .34 Costa Rica .15 .14 Mexico .32 .30 .44 .38 Peru .33 .25 .16 .15 Uruguay .35 .22 .20 .22 USA 1.00 1.00 1.00 1.00 Source : Jorge Katz, ECLAC Review 71, August 2000: 69
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
4. Competitiveness, Comparative Advantage and the Terms of Trade
Image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern