Principles of Macroeconomics – International Trade Policy (Lecture 12.1)

Principles of Macroeconomics – International Trade Policy (Lecture 12.1)

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Principles of Macroeconomics – International Trade Policy (Lecture 12.1) The importance of global trade Australia is a small, open to free trade economy. Gains from Trade Learning-by-doing occurs when a person (or nation) specializes and by repeatedly producing a particular good or service becomes more productive in that activity and lowers its opportunity cost of producing that good over time. Dynamic comparative advantage occurs when a person (or nation) gains a comparative advantage from learning-by-doing. In this example, Australia would end up with 50 TVs and 100 coals, thus 1 TV costs 2 coals. Taiwan would end up with 100 TVS and 50 coals, thus 1 coal costs 2 TV. Therefore Australia has the comparative advantage for producing coal and Taiwan for producing TV due to opportunity cost. o Australia can sell 100 coals for 100 TVs from Taiwan. Also, Taiwan can sell 100 TVs and get 100 units of coal from Australia. Now both countries have more TVs and coals than before free trade. This is the effect of comparative advantage. o
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This note was uploaded on 09/27/2011 for the course FINANCE 1001 taught by Professor Profassorted during the Three '11 term at University of Adelaide.

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Principles of Macroeconomics – International Trade Policy (Lecture 12.1)

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