ECON 120W Lecture Notes - Lecture 9: Market Power, Economic Surplus, Comparative Advantage
Document Summary
Chapter 9: international trade: country has comparative advantage if it produces goods at lower opportunity cost than others. Countries gain from trade if each exports the goods in which it has comparative advantage: for example: if the domestic price and world price is , then the country producing at will have a high opp. Cost of producing the good compared to the world. Thus, it was no comparative advantage in that trade and will import: when an economy cannot trade in world markets, the price adjusts to balance domestic supply and demand. It"s assumed that the domestic countries do not affect foreign markets when they allow trade. World price: pw = the world price, the price of a good that prevails in world markets for that good, pd = the domestic price of that good without trade. Country has comparative advantage in good country doesn"t have comparative advantage.