lecture 20 - 2010: LECTURE 20 1 LECTURE 20 APPLICATION OF...

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Unformatted text preview: 2010: LECTURE 20 1 LECTURE 20 APPLICATION OF MARKET EFFICIENCY: TRADE Gains from exporting (done) Gains from importing. Common Arguments Against Trade Mankiw: Chapter 9 2010: LECTURE 20 2 Should US import cheaper lumber from Canada?- restricting imports has raised prices 2010: LECTURE 20 3 2010: LECTURE 20 4 IMPORTING MARKET : STEEL Staus-quo: No trade : Equilibrium: price 20 ($/ton) quantity 100 (m. ton/month). 2010: LECTURE 20 5 Benefit from consuming: (m$/month) Benefit from profits: (m$/month) 2010: LECTURE 20 6 New Situation: Trade opens-up ROW steel price: 15 ($/ton) A. Comparative Advantage Analysis US: p steel = 20 ($/ton). Hence MC = 20 ($/ton). Opportunity cost of steel = 20 other things. ROW: p steel = 15 ($/ton). Hence MC = 15 ($/ton). Opportunity cost of steel = 15 other things. ROW has lower opportunity cost of steel - comparative advantage in steel. Predictions of comparative advantage analysis: ROW specializes in steel, US specializes in other things With trade: world price 15-20 ($/ton) Well-being increases. 2010: LECTURE 20...
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lecture 20 - 2010: LECTURE 20 1 LECTURE 20 APPLICATION OF...

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