POLI 243 Lecture Notes - Comparative Advantage, Free Trade, Monetary Policy
23 Apr 2013
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Document Summary
The politics of trade:from international relations to international political economy. Definition: an actors ability to produce a good or service more efficiently than another actors ability to do so ex: middle pins to demonstrate how efficiency was used. stages of production. Individuals attempting to do all the stages on their own, when they should divide the tasks. A simple example of comparative advantage: ( ricardo) 300/150 or 2/1 ( 2 units of textiles= 1 unit of wine) 240/80 or 1/3 ( 1 unit of textiles= 3 units of wine) Domestic prices in the two countries, differ, therefore this is what drives trade. In country a: 1 unit of wine costs 2 units of textiles. In country b: 1 unit of wine costs 1/3 a unit of textiles. If they can, a should trade textiles for b"s wine. if each specializes, the total production possible is: Based on the endowments of the factors of production.
