BUS 151 Lecture Notes - Lecture 9: Williams International, Comparative Advantage, Nuance Communications
9 May 2020
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Country a has a larger relative advantage than country b. Country a can produce 3x as much food than country b (larger than cloth) Nuance is that there is a greater relative advantage: makes all the difference in trade (important, it is what you do relative not absolute (that"s the key) Comparative advantage works as long as the relative categories are not equal. Use the relationship between the countries to justify trade. Barter ratio in the example of (a) 2:1/ (b) 5:1. Choose a ratio between two country ratios: ex. Country a: focus all of inputs into food: 6,000. Country b: focus all of inputs into clothe: 10,000. County a: 1. 6 food, 6. 4 cloth. Country b: 1. 6 food, 6. 4 cloth. Consumption: what is our consumption relative to what we produce and can trade. Country a: 4. 4 (what remains after trade, 6. 4 (we just imported it) Country b: 1. 6 (we just imported it, 3. 6 (what remains after trade)
