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Lecture 13

International Relations- Lecture 13.doc

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Political Science

International Relations Lecture 13International TradeAs old as time trade has always occurredthExamples Salt trade 816 century The silk road Africa Asia European Maritime Exploration The New World Age of Exploration Oil Middle East Western World Basic ConceptsTransaction costs cost of trade including transportation but also risk etc Opportunity Costs amount of some other good that is lost in order to obtain unit of given good Relative Price the price of a good in terms of other goods the barter price Modern Theory of TradeAdam Smith 17231790 wrote the wealth of nations the father of modern economics free trade specialization Absolute vs Comparative Advantage If there isnt an absolute advantage there will be a comparative advantage still build shelters 31 while fishing 21 there is a comparative advantageRicardos comparative advantageGlobal welfare is maximized if everyone chooses free tradeEach nations welfare is maximized by unilateral free tradeHowever some countries win relatively more than others Relative gains vs absolute gain
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