Absolute and Comparative Advantage

Absolute and Comparative Advantage - d. Be able to compute...

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1. Absolute and Comparative Advantage a. Know the assumptions of the Ricardo’s Absolute Advantage and Comparative Advantage models. Absolute advantage comes from tech , comparative comes from the country that produces lower opportunity cost. b. Why, according to these models, is trade a good thing? Specialization = efficiency, cheaper than world market price. They then produce more of what they are good at and exporting it for a good they’re NOT good at making. Both countries gain. c. Be able to recognize who has absolute advantage and comparative advantage in a numerical, two-country example.
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Unformatted text preview: d. Be able to compute the opportunity cost of a country in an example in order to show why one country would have the comparative advantage in the production of a good. Be able to compute a possible price that the two countries would set in their trading relationship. e. How does this model of comparative advantage apply to developing countries in general? f. What would this model of comparative advantage advise a developing country to do, why? (Would we imagine that they would completely specialize in one good or another?) The implication is total specialization....
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This note was uploaded on 09/30/2011 for the course ECN 115B 115B taught by Professor Wilson during the Spring '09 term at UC Davis.

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