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Lecture

ECO101H1 Lecture Notes - Textile Industry, Absolute Advantage, Comparative Advantage


Department
Economics
Course Code
ECO101H1
Professor
James Pesando

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Topic 22 t International Trade
March 21st t 23rd
Outline:
1. The Gains from Trade: Individuals (Omit t see Micro)
-- Example
-- Consume outside PPF
2. The Gains from Trade: Nations
-- Overall Gain
-- Winners and Losers
3. (Weak) Arguments Against Trade
4. Tariffs;
z The Gains from Trade: Individuals
-- Omit; see Micro Notes;
-- Two ways of expressing PPF:
1. Production Possibilities (Per Week)
Cloth
Corn
John
15
3
Jane
32
16
Resources Required to Produce One Unit of:
Cloth
Corn
John
1/15
1/3
Jane
1/32
1/16
(These two are the same)
Opportunity Cost of Producing One unit of :
Cloth
Corn
John
0.2 corn
5 cloth
Jane
0.5 corn
2 cloth
z The Gains from Trade: Nations
Overall Gain: With trade, a country can consume outside its PPF by specializing in the production of goods
in which it has a comparative advantage.
Q: How can you tell if a country has comparative advantage in the production of good?
A: Look at which goods the country is importing and exporting
Domestic price < world price Æ country has a comparative advantage and will export good;
Domestic price > world price Æ country does not have a comparative advantage and will import good;
(Remember: in perfect competition, prices reflect costs of production (P=ATC) )
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