ECN 220 Lecture Notes - Lecture 1: Portuguese Wine, Gross Domestic Product, Opportunity Cost
11 Mar 2016
School
Department
Course
Professor
Document Summary
Production: total production can be measured by adding up total expenditures or total incomes they should come to the same sum, gross domestic product (gdp) International trade: we will briefly examine the theory justifying: (1) free trade (i. e. trade without restrictions) or (2) protectionism (i. e. limitations on the freedom of movement of goods between countries) Theory of comparative advantage: the classical justification for free trade is the theory of comparative advantage. Suppose england and portugal trade cloth and wine with each other. Suppose it takes 80 units of labour to produce 1 unit of wine and 90 units of labour to produce i unit of cloth in portugal. It takes 120 units of labour to produce 1 unit of wine and 100 units of labour to produce 1 unit of cloth in england. Opportunity costs: we can express the costs of goods in terms of each other.
