Handout9 - Lecture 9 Outlines Trade USA THE GLOBAL ECONOMY Interdependence The Economic Basis for Trade Reasons countries trade 1 2 3

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Lecture 9 Outlines: Trade USA & THE GLOBAL ECONOMY Interdependence The Economic Basis for Trade Reasons countries trade: 1. 2. 3. Distributional effects – leads to countries having comparative advantages. Suppose 2 products: Computers, Coffee Consider two countries, USA and Brazil Computers Coffee USA 20 min/computer 10 min/pounds Brazil 1 hr/computer 15 min/pound Amount produced in 8 hours Computers Coffee USA 24 computers 48 pounds Brazil 8 computers 32 pounds USA production possibilities Brazil production possibilities USA A (8,0) B (4,4) C (0,8) Brazil A (8,0) B (4,4) C (0,8) Computers Computers Coffee Coffee
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Let’s graph the PPF: opportunity-cost: Absolute Advantage: Comparative Advantage: USA: Brazil: Opportunity Cost Ratio to produce 1 unit of Coffee Computer USA Brazil
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Who has the comparative advantage in producing coffee? Who has the comparative advantage in producing computers? In this world, USA should specialize and produce ____________ , and Brazil should specialize
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This note was uploaded on 01/28/2012 for the course ECON 1102 taught by Professor Someguy during the Spring '07 term at Minnesota.

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Handout9 - Lecture 9 Outlines Trade USA THE GLOBAL ECONOMY Interdependence The Economic Basis for Trade Reasons countries trade 1 2 3

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