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Econ notes - Microeconomics Notes Chapter 3 Exports goods...

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2/3/2011 Microeconomics Notes Chapter 3 Exports : goods produced domestically and sold abroad. to export means to sell domestically produced goods abroad Imports : goods produced abroad and sold domestically. to import means to purchase goods produced in other countries. Absolute advantage: the ability to produce a good using fewer inputs other than another producer The US has an absolute advantage in wheat: producing a ton of wheat uses 10 labor hours in the US vs. 25 in Japan If each country has an absolute advantage in one good and specializes in that good, then both countries can gain from trade. Two measures of the Cost of a Good Two countries can gain from trade when each specializes in the good it produces at the lowest cost. Absolute advantage measures the cost of a good in terms of the inputs required to produce it Recall: Another measure of cost is opportunity cost . Comparative Advantage: the ability to produce a good at a lower opportunity cost than another producer
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