Comparative_Advantage

Comparative_Advantage - Comparative Advantage The Theory of...

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Comparative Advantage The Theory of International Trade
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Why Trade? Make money on exports When cost is less than what foreign buyers will pay Buy imports cheap When import prices are less than domestic prices But what about lost domestic jobs and profits?
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Trade Problem U.S. worker productivity Corn 600 bu Oranges 200 bu Mexican productivity Corn 100 bu Oranges 100 bu
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Comparative Advantage U.S. worker productivity Corn 600 bu Oranges 200 bu Op cost Corn Oranges Mexican productivity Corn 100 bu Oranges 100 bu Op cost Corn Oranges
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Mutual Benefit U.S. opportunity cost = 3 corn/orange Mexico opportunity cost = 1 corn/orange
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Comparative Advantage Analysis Draw the production possibilities Find the opportunity costs Find comparative advantage Export the comparative advantage good Trade at relative prices between the autarkic comparative advantage Show the larger opportunity set
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Combined opportunity set
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This note was uploaded on 10/17/2011 for the course EC 201 taught by Professor Haider during the Spring '10 term at Michigan State University.

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Comparative_Advantage - Comparative Advantage The Theory of...

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