Ch 5 Global Trade [AP & Reg]


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Unformatted text preview: for Review Global Trade Co mparative and Abs o lute Advantage Coffee C o ffe e [Comparative Advantage can produce at a lower productive opportunity cost] aiti’s DCC Cuba’s DCC a iti’s Haiti B = __ C 1B = __ C Cuba 100 costs 4 costs 100 1 /5 90 X 1/5 _ B = 1C __ B = 1C 6 1/4 costs 1/6 costs But CPC is out here 80 PPC is still here Terms of Trade Trade “I can consume “A prisoner of can only on my PPC.” my own PPC.” only 5 1 bread = __coffees bread 45 50 40 10 o Bread 20 X 5 7.5 9 0 Bread 15 18 Wo rld CC 1 Bread=__ Coffees 5 1/5 __ Bread=1 Coffee “Trade is the fre e lunc h o f e c o no mic s .” 1. (Haiti/Cuba) has an absolute advantage in coffee and (Haiti/Cuba) has an absolute advantage in bread. 2. Haiti will export (bread/coffee) [comparative advantage] & import (bread/coffee). [comparative disadvantage] & Cuba will export (bread/coffee) & import (bread/coffee). 3. Advantageous trade can occur between Haiti & Cuba when 1 bread is exchanged for (3/5/7) tons of coffee. Production in both reflects (increasing...
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This note was uploaded on 07/20/2012 for the course ECON 2106 at GCSU.

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