POL-UA 700 Lecture Notes - Lecture 20: Absolute Advantage, Free Trade, Comparative Advantage
4 May 2016
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Political economy of trade: governments regulate to protect select constituencies. The larger the coalition on which a government relies, the less likely it is to promote trade protection. Concentrated harms that we can see: clothing manufactures lost business in us to other parts of the world. People who can now buy clothes more cheaply can use the saved money to buy other goods. Comparative and absolute advantage: absolute advantage: the ability to produce a good or service at a lower cost than anyone else. Opportunity cost spending this time producing the good or service. Hours needed to make one unit of win. Hours needed to make one unit of cloth. Production possibility frontier: theoretical limit of production between two goods when using all of your labor. Figure 10. 1: the production possibility frontiers: portugal and england. Portuguese can produce more of both than the english: portugal will produce win and england will produce cloth.
