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ch33a - Chapter 33 The gains from trade OUTLINE Gains from...

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Chapter 33 – The gains from trade OUTLINE Gains from trade Absolute and comparative advantage Comparative advantage and gains from trade Production & consumption possibility boundaries Gains from trade arise if… Opportunity costs differ between countries . ( Theory of comparative advantage ) Why? Trade allows importing countries to acquire goods at a lower opportunity costs than if they produced the goods themselves. Sources of comparative advantage : Different factor endowments (natural & man-made). Example 1 : Should Michael Jordan mow his lawn or can he gain from trade with the kid next door? Time to mow lawn Opportunity costs Michael Jordan 2 hours Kid next door 4 hours Example 2 : Should Canada produce its own textiles or can it gain from trade with China? Workers required to produce a yard of textiles Opportunity costs Canada 2 workers China 4 workers Absolute and comparative advantage 2 countries: A & B.
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