ECON 102 Lecture Notes - Lecture 8: Market Power, Absolute Advantage, Perfect Competition
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To find gains from trade: derive the ppf for each country. Absolute advantage: the ability to produce a good using fewer inputs than another producer. U. s. has an absolute advantage in wheat and computers. If each country has an absolute advantage in one good and specializes in that good then both countries can gain from trade. Two countries gain from trade when each specialized in the good it produces at lowest cost (lower slope means lower opportunity cost) Absolute advantage measures the cost of a good in the input required to produce it. Comparative advantage: the ability to produce a good at a lower opportunity cost than another producer (lower slope means lower opportunity cost) Absolute advantage is not always necessary for comparative advantage. Gains from trade arise from comparative advantage (difference in opportunity cost) Being able to produce good at lower cost. A market is a group of buyers and sellers o a particular product.