ECO-2013 Lecture 15: Chapter 18

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10 Mar 2016
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The trade sector of the united states: the trade sector is a growing portion of gdp. Gains from specialization and trade: comparative vs. absolute advantage, comparative advantage reveals opportunity cost, absolute advantage does not; it simply means who can produce more . Japan has a comparative advantage in making food. U. s. has a comparative advantage in making clothes. Japan incurs a lower opportunity cost when producing food. The u. s. incurs a lower opportunity cost when producing clothing. The u. s. has an absolute advantage in food. Generally, any trade restriction will reduce quantity, increase consumer prices, and create a deadweight loss (elimination of gains from trade) Tariff is a tax on imports (it raises the price so quantity demanded will fall); it reduces imports and generates revenue for the government. A quota is a limit on the physical units that can be imported; no revenue. Why do nations adopt trade restrictions: national defense.

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