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Unformatted text preview: ver another when that product can be produced at lower cost in terms of other goods than it could be in the other country. GI has a comparative advantage in producing huts, to produce a hut, it costs 1/3 of a radio. For SFR to produce a hut, it costs 3 radios. SFR has a comparative advantage in producing radios. To produce a radio, it costs 1/3 of a hut. For GI to produce a radio, it costs 3 huts. 21
– Now suppose GI, who has the comparative advantage in huts only produces huts and SFR, who has the comparative advantage in radios only produced radios. – This is called specialization the division of productive activities among persons and regions so that no one individual or one area is totally selfsufficient. 22
22 Trade GI specializes in huts and produces 60 huts.
SFR specializes in radios and produces 60 radios
60 GI PPF
Current Consumption (15 huts, 15 Radios) each. (Just happens to be at the cross point.) 20
20 60 Radios 23
23 Trade Now suppose that GI and SFR trade Terms of trade are 1 radio for 1 hut. – This means GI buys radios from SFR for less huts than the opportunity co...
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This note was uploaded on 03/23/2014 for the course ECON 2306 taught by Professor Bailiff during the Spring '08 term at UT Arlington.
- Spring '08