POLI 243 Lecture Notes - Comparative Advantage, In Country

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18 Mar 2013
The Politics of Trade
From IR to IPE
The Logic Behind Trade
Comparative Advantage
The Wealth of Nations: Different people have different capacities to produce and to
increase aggregate output, specialization is required
an actor’s ability to produce a good or service more efficiently than another
actor’s ability to do so
If a country concentrates their resources to producing the good that they have a
comparative advantage in, the aggregate world output for that good will rise
Trade the rest
In Country A, 1 Unit of Wine costs 2 units of textiles
Country B, 1 unit of wine costs 1/3 unit of textiles
A should trade textiles for B’s wine
The Heckscher-Ohlin Model
What you are good at depends on what you have
Natural Endowments
Canada has a lot of land, can produce wheat
Base on endowments of the factors of production
Labour, Capital, Land
Inputs to production
H-O Model and trade patterns
Issues Concerning the Economics of trade
Canada’s biggest trade partner is the US
Explaining intra-good trade
Buying cars from Japan rather than those made from Canada
Factors that are not captured by the model
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