Comparative Advantage

Comparative Advantage - In this chapter look for the...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE 1 In this chapter, look for the answers to these questions: Why do people – and nations – choose to be economically interdependent? How can trade make everyone better off? What is absolute advantage? What is comparative advantage? How are these concepts similar? How are they different?
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Interdependence Every day you rely on many people from around the world, most of whom you do not know, to provide you with the goods and services you enjoy. 0 coffee from Kenya dress shirt from China cell phone from Taiwan hair gel from Cleveland, OH CHAPTER 3 INTERDEPENDENCE
Background image of page 2
CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE 3 Interdependence 0 One of the Ten Principles of Economics from Chapter 1: Trade can make everyone better off. We will now learn why people – and nations – choose to be interdependent, and how they gain from trade.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE 4 Our Example Two countries: the U.S. and Japan Two goods: computers and wheat One resource: labor, measured in hours We will look at how much of both goods each country produces and consumes if the country chooses to be self-sufficient if it trades with the other country 0
Background image of page 4
CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE 5 Production Possibilities in the U.S.  The U.S. has 50,000 hours of labor available for production, per month. Producing one computer requires 100 hours of labor. Producing one ton of wheat requires 10 hours of labor. 0
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE 6 4,000 100 5,000 2,000 1,000 3,000 500 200 300 400 0 Computers Wheat (tons) The U.S. PPF The U.S. has enough labor to produce 500 computers, 0 or 5000 tons of wheat, or any combination along the PPF.
Background image of page 6
CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE 7 US PPF The slope tells us the (opportunity) cost of computers. Each computer produced costs the US 10 tons of wheat. The slope is a constant -10 since we are assuming costs are constant.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE 8 4,000 100 5,000 2,000 1,000 3,000 500 200 300 400 0 Computers Wheat (tons) The U.S. PPF The U.S. has enough labor to produce 500 computers, 0 or 5000 tons of wheat, or any combination along the PPF. -10
Background image of page 8
INTERDEPENDENCE AND THE GAINS FROM TRADE 9 4,000 100 5,000 2,000 1,000 3,000 500 200 300 400 0 Computers Wheat (tons) The U.S. Without Trade Suppose the U.S. uses half its labor to produce each of the two goods. 0 Then it will produce and consume
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 31

Comparative Advantage - In this chapter look for the...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online