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

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1 Aug 2010
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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
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ECO102H1 Full Course Notes
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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):

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