POL224Y1 Lecture Notes - Lecture 10: Monetarism, North American Free Trade Agreement, Mihail Manoilescu
Document Summary
In 2014: about 19 trillion usd traded across countries. For canada: about 1 trillion cad in imports and exports per year. States gain from trade when they produce the goods (or services) for which they have a comparative advantage, that is, the goods for which the opportunity costs are lower than for trading partners. Theorized by ricardo in the principles of political economy and. Expands ideas emphasized earlier by adam smith and robert torrens. Preferential deal in 1960s for trading and producing cars. Equilibrium price will fall in middle, otherwise neither state will have incentive to trade with other. Produce more if specialize in product for which one has a comparative advantage. Hours of work to produce 1 unit of output of either. Trade can only improve productivity (and salaries) in both countries --> everyone is wealthier. Common approach is to retrieve comparative advantages based on observed trade patterns. Rebutted by james meade and robert baldwin - mid-20th century.
