ECON 102 Lecture Notes - Lecture 22: Absolute Advantage, Comparative Advantage, Opportunity Cost
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ECON 102 Full Course Notes
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Lecture 22: trade 1- the argument in favor of trade. Autarchy: no trade: in autarchy, an economy makes a productive choice via planning or markets. A fully informed social planner makes the same welfare maximizing choice as under competitive markers. Slope(ppf) = - relative price of x-axis good = - px-axis good / py-axis good. Slope of ppf is constant: 2 types of autarkic outcomes: Only one or the other is produced. Absolute advantage: the situation where one country can produce the same good as another while using fewer resources: basically irrelevant when thinking about trade. When each country specializes, they will put all resources into the good of comparative advantage: then they have to trade back at mutually agreeable prices. The consumption possibilities curve under trade is above the ppf rgdp will go up even in a country where nx is zero because c goes up can give up a lot less by buying from another country.
