Chap002trade

Chap002trade - The Production Possibility Model, Trade, and...

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The Production Possibility Model, Trade, and Globalization 2 Comparative Advantage The Production Possibility Model, Trade, and Globalization 2 Markets, Specialization, and Growth • Growth in per capita income during the past 2000 years What caused this growth? $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 500 1000 1500 2010 0 Income Year 2-2 The Production Possibility Model, Trade, and Globalization 2 Comparative Advantage • A resource has comparative advantage if it has the ability to be better suited to the production of one good than another • The reason the opportunity cost of guns increases as we produce more guns is that some resources have comparative advantage over other resources 2-3 The Production Possibility Model, Trade, and Globalization 2 The Benefits from Trade Chocolate (tons) Textiles (yds) Without trade, each country can only consume those combinations of goods along their PPCs • When people freely enter into trade, both parties can be expected to benefit from trade 5,000 4,000 3,000 2,000 1,000 2 345 1 Belgium Pakistan 2-4 The Production Possibility Model, Trade, and Globalization 2 The Benefits from Trade Chocolate (tons) Textiles (yds) 5,000 4,000 3,000 2,000 1,000 2 1 Belgium Pakistan Why should Pakistan specialize in textiles and Belgium specialize in chocolates?
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This note was uploaded on 01/13/2012 for the course ECON 102 taught by Professor Mikejavanmard during the Fall '10 term at Harvard.

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Chap002trade - The Production Possibility Model, Trade, and...

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