Class Notes (1,100,000)
CA (620,000)
Carleton (20,000)
ECON (300)
ECON 1000 (200)
Lecture 4

ECON 1000 Lecture Notes - Lecture 4: Absolute Advantage, Comparative Advantage, Opportunity Cost


Department
Economics
Course Code
ECON 1000
Professor
Paul Haddow
Lecture
4

This preview shows half of the first page. to view the full 3 pages of the document.
Chapter 3: Interdependence and the gains from trade
Trade benefits all participants
not a “ zero-sum” game
effectively expands each person’s/country’s PPF( like technological progress in Chapter 2)
both countries benefit from trade at any “ agreed price” between their respective domestic
opportunity costs
a country’s share of benefits increases the closer the “agreed price” is to the other country’s
domestic opportunity costs
What drives trade?
absolute advantage: can produce good at lower input costs
- comparing producers ( people, firms, or countries)
comparative advantage: can produce good at lower opportunity cost
Comparative advantage:
determines who specializes/exports in what
“driver” for gains from trade
determined by country’s resource endowments: amount and type of land; climate;
infrastructure; stock of physical and human capital
even if a person or country has no absolute advantage, it always has a comparative
advantage
even if a person/country has an absolute advantage in producing both goods, it only has a
comparative advantage in one good because the opportunity cost of one good is the inverse
of the other
You're Reading a Preview

Unlock to view full version