6-InternationalTrade

6-InternationalTrade - 6. International Trade (Chapter 9)...

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6. International Trade (Chapter 9) Principles of Microeconomics Mankiw et al. 5th Cdn Edition Introduction to Microeconomics (ECO 1104F) University of Ottawa
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6. International Trade Seek answers to these questions: 1. What determines how much of a good a country will import or export? 2. Who benefits from trade? Who does trade harm? Do the gains outweigh the losses? 3. If policymakers restrict imports, who benefits? Who is harmed? Do the gains of the policy outweigh the losses? 4. What are some common arguments for restricting trade? Do they have merit?
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Reminder: Absolute and comparative advantages Hours of work required to produce one unit of wine or one unit of soap Country Wine (W) Soap (S) A (40W=80S; 1W=2S OR 1S=0.5W) 40 80 B 120W=100S; 1W =1.2S OR 1S=0.833W 120 100 1. Which country has an absolute advantage in the production of wine? 2. Which country has an absolute advantage in the production of soap? 3. Which country has a comparative advantage in the production of wine? 3. Which country has a comparative advantage in the production of soap?
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Reminder: Absolute and comparative advantages Maximum quantities of wine or soap produced by each country Country Wine (W) Soap (S) A (80W=120S; 1W=1.5S OR 1S=0.67W) 80 120 B (60W=180S; 1W =3S OR 1S=0.33W) 60 180 1. Which country has an absolute advantage in the production of wine? 2. Which country has an absolute advantage in the production of soap? 3. Which country a comparative advantage in the production of wine? 3. Which country has a comparative advantage in the production of soap?
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Reminder: Wine and Cheese in the US and Canada US Wine Production (W) Cheese Production (C) 6 12 5 10 4 8 3 6 2 4 1 2 0 0 CANADA Wine Production (W) Cheese Production (C) 10 0 8 3 6 6 4 9 2 12 0 15
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Reminder: Wine and Cheese in the US and Canada US Wine Production (W) Cheese Production (C) 6 12 5 10 4 8 3 6 2 4 1 2 0 0 CANADA Wine Production (W) Cheese Production (C) 10 0 8 3 6 6 4 9 2 12 0 15 1. Which country has an absolute advantage in the production of wine? 2. Which country has an absolute advantage in the production of cheese? 3. Which country will specialise in the production of wine? 4. Which country will specialise in the production of cheese? 5. What are the limits of the terms of trade?
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US Wine Production (W) Cheese Production (C) 6 12 5 10 4 8 3 6 2 4 1 2 0 0 CANADA Wine Production (W) Cheese Production (C) 10 0 8 3 6 6 4 9 2 12 0 15 1. Absolute advantage in the production of wine? Canada 2. An absolute advantage in the production of cheese? Canada Opportunity Costs Canada: 10W=15C; 1W=1.5C; 1C=0.66W US: 6W=12C; 1W=2C;1C=0.5W 3. Specialisation in wine production? Canada 4. Specialisation in cheese production? US 5. Limits of the terms of trade? 1.5C <1W< 2C
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This note was uploaded on 01/21/2012 for the course ECO 1104 taught by Professor Crabbe during the Winter '08 term at University of Ottawa.

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6-InternationalTrade - 6. International Trade (Chapter 9)...

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