02 comparative advantage PPT

She knows how to do household chores brief

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Unformatted text preview: cond most powerful woman in the world. – She knows how to do household chores. Brief description and picture taken from http://en.wikipedia.org/wiki/Wu_Yi 3 15:49:02 4 (1) People have different preference three benefits of trade (1) Trade makes people better off when preferences differ. Sep 1995, Pierre Omidyar (2) Trade increases productivity through specialization and the division of knowledge. (3) Trade increases productivity through specialization according to comparative advantage. 15:49:02 5 15:49:02 6 1 (2) Specialization increases productivity North, Douglass C., 2005, Understanding the Process of Economic Change, pp.89: Modern economies require more knowledge than can exist in a single brain. events happened in history Specialization ⇒ knowledge↑ ⇒ productivity↑ Without trade, specialization is not possible. Trade → markets↑ → division of knowledge↑ Entrance of China, Eastern Europe, and Russia into world markets → stock of engineers↑, scientists → available knowledge↑ 15:49:02 7 internet photo Adam Smith on specialization: 8 (3) Comparative advantage A country has a comparative advantage in producing goods for which it has the lowest opportunity cost. “One man draws out the wire, another straightens it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations... I have seen a small manufactory of this kind where only ten men were employed... [who] could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are...
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