ECON 2020 Lecture Notes - Lecture 3: Absolute Advantage, Autarky, Comparative Advantage

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5 Feb 2017
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Chapter 3
Gains from Trade
I. Question to answer
a. Why do people and nations choose to trade?
b. How can trade make everyone better off?
i. What are conditions?
c. What is comparative advantage?
i. How does it relate to grains from trade?
*independent: autarky*
Labor hours / amount of good = start/end point on PPF
II. Gains from trade example
i. Two countries U.S. and Japan
ii. Two goods wheat and computers
iii. One resource labor hours
a. U.S.
50,000 labor hrs
1 computer = 100 hours
1 ton of wheat = 10 hours
b. Japan
30,000 labor hours
1 computer = 125 hours
1 ton of wheat = 25 hours
c. Consumption from trade
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