ECON101 Lecture Notes - Comparative Advantage, Import Quota, Opportunity Cost

• School: University of Alberta
• Department: Economics
• Course: ECON101
• Professor: Alexander Gainer

Document Summary

Comparative advantage if one country can make a product at a lower opportunity cost than another country. The world price of a good prevails in the world market. A country has a comparative advantage if the domestic price is less than the world price. In this chapter we assume the domestic price of a product is the opportunity cost. Under free trade the country will export the good if pd < pw. No comparative advantage if pd > pw. Quota set quantity on what one can import. If there is no comparative advantage than under free trade, the country will import the good. Assume that a country is a price taker in the world market because their actions don"t affect the world price. In reality only usa impacts the world price, every other country is a price taker. World price is the only relevant price.