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Lecture 46

ECON 102 Lecture Notes - Lecture 46: Comparative Advantage

Course Code
ECON 102
Robert Gateman

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Econ 102 Lecture 46
3. Terms of Trade: TOT
1. The terms of trade determine how the gains from trade are shared - how will
the gains in world per capita GDP (standard of living) be shared among the
trading nations?
2. Terms of Trade
a. Terms of Trade = international relative price (of export)
b. Terms of Trade = how many imports can be purchased per unit of
export (how many imports to buy one export)
c. Terms of Trade = price of exports/price of imports, in international
Terms of Trade = Px/Pm (value, not
i. From 3 to 4 mangoes per beaver → favourable
ii. From ⅓ to 1 beaver per mango → UNfavourable
3. Improvement in the TOT increase consumption possibilities
Px rises
Pm constant
More imports for one
Terms of Trade
Pm rises
Px constant
Less imports for one
Terms of Trade
Export = Beaver = Wheat
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