ECO102H1 Lecture Notes - Lecture 42: Canadian Dollar, Mexican Peso, Exchange Rate

50 views4 pages
1 Aug 2010
School
Department
Course
Professor
Tuesday, April 6th, 2010
Canada does not have comparative advantage in production of textiles
Before trade (BT)
PBT > PW
QBT = domestic quantity demanded/supplied
After trade (AT)
PAT = PW
QSAT = Domestic quantity supplied
QDAT = Domestic quantity demanded
QDAT - QSAT = Imports
Terms of Trade
Index of export prices
Index of import prices
Insight: If terms of trade increase, country is better off
Tariffs
Definition: tax imposed on imported goods
Why do countries impose tariffs?
To protect import-FRPSHWLQJLQGXVWULHV³VSHFLDOLQWHUHVWV´
Example: (1) Country imports good (and also produces good domestically)
(2) Country is small and takes the world price as given
www.notesolution.com
Unlock document

This preview shows page 1 of the document.
Unlock all 4 pages and 3 million more documents.

Already have an account? Log in

Document Summary

Canada does not have comparative advantage in production of textiles. Insight: if terms of trade increase, country is better off. Example: (1) country imports good (and also produces good domestically) (2) country is small and takes the world price as given www. notesolution. com. 1 = new domestic price = world price + Tariff reduction: relatively few workers lose jobs and suffer big losses =, many consumers benefit by a small amount of lower prices => lowers real gdp (per capita) lobby against freer trade not likely to organize in favour of freer trade www. notesolution. com. Common fallacies: one country benefits => the other country loses, countries with high-paid workers cannot complete with countries with low-paid workers. P = / = <=> each canadian dollar costs 86 us cents. 0: comparative advantage, not absolute advantage, is key to trade www. notesolution. com, exchange rate adjusts so t,997,/0894-,, suppose, at current exchange rate (price of canadian dollar):

Get access

Grade+
$10 USD/m
Billed $120 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers