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Lecture 4

ECON 4290 Lecture 4:


Department
Economics
Course Code
ECON 4290
Professor
Xavier DeVassay
Lecture
4

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Lecture 4 - OCTOBER 1
Lecture 4 - OCTOBER 1
Production and Trade (Continued)
At point P, the relative price of producing 1 more unit of clothing ( given by the slope of the PPF) is lower than the relative price of 1 more unit of
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Lecture 4 - OCTOBER 1
clothing given by the rest of the world.
P to V we produce less food but more clothing. We are still at full employment ( because we are still at the PPF ) Trade has nothing to do with jobs.
Now at V, Pc/Pf world = MCc / MCf
Is there balance of trade? YES because the value of your production equals the value of your consumption.
Suppose the world price of food =2
And the world price of clothing = 1
Pc/Pf= 1/2
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Lecture 4 - OCTOBER 1
Trade is about production and change on production.
Introduction to Comparative Advantage
In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower
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