Chap002trade

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

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Unformatted text preview: 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 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 3 4 5 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 3 4 5 1 Belgium Pakistan Why should Pakistan specialize in textiles and Belgium specialize in chocolates?...
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Chap002trade - The Production Possibility Model, Trade, and...

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