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ECO102H1 (155)

ECO100 - MAR 20

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University of Toronto St. George
James Pesando

Gains from Trade ● Bolivian Quinoa Example ● Steve Holt’s January 25th, 2013 article on ● Quinoa’s Dark Secret (Foreign demand, soil erosion drive up the crop’s price and threaten its future - and the future of those who grow it) ● Gains from trade ○ 1. High productivity (output per worker) ■ There will be an increase in production ■ Marginal productivity will be higher if they are working in a industry in which they have a comparative advantage ■ By specializing, each country is more efficient on average ■ Learning by doing & returns to scale (may belong in pt.4?) ● cost industry in the long run ● constant cost industries ○ increase cost industries ○ and decrease cost industries ○ SEE TEXTBOOK ○ 2. Real GDP per capita is higher ■ Because of trade ■ it is a common/standard measure of well-being ○ 3. Jobs will be gained in industries with comparative advantage ■ there will also be jobs lost in other industries Summary Determinants of ComparativeAdvantage ● 1. Factor Endowments ○ Fundamental model of international trade ○ Heckscher-Ohlin Theory of Trade ○ Amount of each factor of production you were endowed with ○ About the quantity of labour and quantity of capital available ○ Produce good that use abundant factors in their production ● 2. Climates ○ Quality of capital available ● 3. Human Capital ○ Quality of capital available ○ Efficiency, literacy ● 4. Acquired Comparative Advantage ○ Comparative advantage as dynamic not static ○ You can invest to make yourself more comparative advantage/ may also lose it ○ innovation and invest can change comparative advantage ○ there is a need for R&D ○ may need to invest in good we currently do not have comparative advantage so that we can have comparative advantage in the future ○ Comparative advantage can be lost Salmon Farms in Chile ● Right climate, no salmon population ● Took 20 years to invest, second largest exporter ● “overall yield
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