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Chapter 15 and pages 38

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ECO 304L
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Chapter 15 and pages 38-42 Chapter 15: International Trade 1. The gains from Trade a. Voluntary trade is not is not a zero-sum game b. Absolute and comparative advantage i. Absolute advantage- exists when one country can produce more of a good than another country ii. Comparitive advantage- exists when one country has a lower opportunity ost to produce a good than another country c. Gains from Trade i. Can make a combined total of more of both d. Practical constraints on trade i. Every transaction involves cost 1. Transportation, communication, general cost of doing business a. Have declined in the last couple o decades resulting in more trade 2. PPF curves for nations are not linear but they have increasing costs and diminishing returns a. Hard to specialize in only one roduct i. Risky, market decline, new technology could replace it, changing weather patterns 2. The terms of Trade a. Terms of trade- The ratio of the price of exported goods to the pice of imported goods i. Determining the terms of trade 1. Whoever has a comparative advantage go to a price where that one has the same amount of surpluss as the other has a shortage ii. Impact of Trade 1. One sector in a countrywill lose, anoth
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