MAE101 Lecture Notes - Lecture 3: Absolute Advantage, Opportunity Cost, Comparative Advantage
1 Aug 2018
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Exports = goods produced domestically and sold abroad. Imports = goods produced abroad and sold domestically. 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. Trade can make everyone better off e. g. two countries, the usa and japan. 1 ton of wheat = 10 hours of labour. Halved the hours of labour so it was equal for both computers and wheat. Then divided the hours available to produce something by how many hours it took the country to actually produce it. Absolute advantage: the ability to produce a good using fewer inputs than another producer. Usa have an absolute advantage in this scenario in the production of wheat because it only takes 10 hours compared to japans 25. They also have an absolute advantage in computers.
