ECON 1011 Lecture Notes - Lecture 8: Import Quota, Economic Surplus, Market Power
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ECON 1011 Full Course Notes
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David ricardo (1772-1823) invented ricardian model of international trade. 2 countries trading 2 goods (chile/argentina & hats/beer) Absolute advantage = given the same resources which country can produce more of a good. Chile has absolute advantage in the production of beer and hats. Must look at opportunity cost argentina has comparative advantage in production of beer because the opportunity cost is lower. Comparative advantage = the ability of a country to produce a good more efficiently than another country. Give up 6 kegs for every 8 hats. Give up 8 hats for every 6 kegs. Winter in the us makes it cheaper for us to buy grapes from chile. Japan has advantage in automobiles in 70s and 80s. Some countries are endowed with better factors of production naturally. Lower production costs due to being located in particular area, carpet industry in. Leads to the countries specializing dedicate all resources to the good they produce most effectively.
