POLS 3790 Lecture Notes - Lecture 11: International Trade Organization, Trade Preference, General Agreement On Tariffs And Trade
17 Feb 2018
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Comparative advantage vs. absolute advantage in a two country, two product model: Uk produces cloth and wine, portugal produces cloth and wine. If the united kingdom is absolutely stronger at producing cloth, but on the wine front, they also have an absolute advantage. Uk is more efficient in both producing wine and cloth. If portugal is bad at the wine thing and terrible at cloth, relative to each other, portugal is less bad at doing wine. Therefore, portugal should put all their resources into their wine. Specialize in what you"re relatively less bad at. Uk produces machine guns and exotic animals, kenya produces machine guns and exotic animals. The uk will shift all their focus into machine guns (lack of animals), and now kenya will specialize in the production of exotic animal parts: now, there are more machine guns and more exotic animal parts.
