EC 202 Lecture Notes - Lecture 3: Comparative Advantage, Breakfast Cereal, Autarky
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The theory of international trade and capital flows. Comparative advantage analysis: draw the production possibilities, find the opportunity costs, find comparative advantage, export the comparative advantage good, trade at relative prices between the autarkic comparative advantage, show the larger opportunity set. Sources of comparative advantage: natural endowments. Iranian carpets: capital, human capital, labor, technology. Michigan"s comparative advantage: past: manufacturing in key oligopolies. Autos, appliances, office furniture, breakfast cereal, etc: today: water. Sugar beets: population loss; poor government; union culture; stodgy corporations; poor infrastructure. Comparative advantage of u. s: u. s. is leading exporter of goods and services, u. s. has 22 % of world"s output. 21% of arable land (adjusted for productivity) 5% of unskilled labor: export high technology, innovation, state-of-the-art goods and services, import low tech manufacturing, food: exports = imports. Inter-temporal production possibilities: present and future production, slope = 1 + rate of return, rate of return = growth rate, faster growing country has steeper slope.
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Related Questions
1. If we know that Canada exports maple syrup, we can conclude that maple syrup consumers in Canada are worse off than they would be in the absence of trade.
Is the statement true or false?
2. When a country opens up to trade in a good for which it has a comparative advantage, and the country begins to export the good, we can conclude that:
a. |
The domestic price will fall after trade opens up. |
|
b. |
The total surplus for this good will increase as a result of opening up the market to international trade. |
|
c. |
Opening the market to international trade will create a deadweight loss. |
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d. |
Both buyers and sellers in that country will be better off as a consequence of opening up the market to international trade. |