ECO100Y1 Lecture Notes - Lecture 21: Comparative Advantage, Economic Equilibrium
Document Summary
Equilibrium price level = domestic price before trade. Equilibrium output = domestic quantity demanded and domestic quantity supplied before trade. If canada does not have comparative advantage in production of textiles. Quantity demanded - quantity supplied = imports: after trade, price paid by domestic consumers increases since canada has a comparative advantage in the production of wheat. Domestic consumers of wheat are "worse off" since they must pay a higher [the world] price of wheat: after trade, domestic consumers pay lower price for goods in which canada does not have a comparative advantage. Domestic consumers of these goods are "better off" since they now pay a lower price for the good. After trade, some producers gain comparative advantage and some producers are worse off because they do not have a comparative advantage. Yet: the overall gains from trade are those predicted by economic theory. Index of exports prices/ index of import prices.
