Ch 5 Global Trade [AP & Reg]

4accordingtothetheoryofcomparativeadvantageagoodshould

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Unformatted text preview: absolute Rabbit advantage in guns? Why does Rabbit have an absolute advantage in guns? Rabbit can produce absolutely more guns than Wabbit [40 units v. 20 units] What country has a comparative advantage in guns? Wabbit Wabbit can produce guns at a lower can opportunity cost [2 butters v. 3 butters] cost v. butters 1 B = 3 G 1/3 B=1G Wabbit Rabbit 1 B = 2 G 1/2 B=1G Wabbit Terms of Trade: 1B = 2.5 G Resource Market [inputs] Country Guns Butter Rabbit 40 hours 120 hours Wabbit 20 hours 40 hours What country has an absolute advantage in guns? Wabbit Why does Wabbit have an absolute advantage in guns? Wabbit can produce guns absolutely faster than Rabbit [20 hours v. 40 hours] What country has a comparative advantage in guns? Rabbit “Let’s change inputs into outputs.” Let’s inputs outputs Rabbit can produce guns at a lower produce opportunity cost [1/3 butter v. 1/2 butter] cost 1/2 evenue Tariffs – applied to products not produced domestically not evenue bananas, coffee]. These...
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This note was uploaded on 07/20/2012 for the course ECON 2106 at GCSU.

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