Unformatted text preview: offees
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/constant) opportunity costs. “Export” what it can produce at a lower relative price and “import” goods it can buy at a lower relative price.
lower Abs o lute Advantag e - more efficient, can produce more with
the same number of inputs [who can produce absolutely more] “Do what you do best & trade for the rest.” With comparative advantage, a nation receives a
higher relative price for the goods it exports ,
pays a lower relative price for the...
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This note was uploaded on 07/20/2012 for the course ECON 2106 at GCSU.