EC Notes 12-5 - Comparative Advantage David Ricardo Theory...

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20:19 EC Notes 12-5-11 What Goods? United States Import and export both manufactured and primary products Exports: Aircraft (#1), Grains (#2), Pharmaceuticals and Chemicals(#3) Imports: oil (#1), Automobiles (#2), Clothing (#3) Japan Exports: majority manufactured products Imports: mostly primary resources Canada Export: primary products Import: manufactured products Determinants of … Absolute advantage Adam Smith (1776)- invisible hand Theory why countries trade: Countries should produce and export those goods in which you are  absolutely  more  productive Flags Water US 60 flags/day 10 units/ day France 10 flags/day 30 units/day
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Unformatted text preview: Comparative Advantage David Ricardo Theory of why countries trade: Countries should produce and export those goods in which you are relatively more productive Flags Water US 60 f/d 60 u/d France 10 f/d 30 u/d Comparative advantage US= 6 times US= 2 times Measuring Imports Diagram- shows the US domestic Market for water before international trade _________________World Trade Consumer and producer surplus P= $1 _____________________ P= $.60 40 100 160 Q CS= +$A + $B PS= -$A TS +$B 20:19...
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EC Notes 12-5 - Comparative Advantage David Ricardo Theory...

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