Economics 1021A/B Chapter Notes -Comparative Advantage, Opportunity Cost, Economic Surplus

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Michael Parkin

Document Summary

The goods and services we buy from other countries are out imports. The goods and services we sell to people in other countries are out exports. National comparative advantage is a situation in which a nation can perform an activity or produce a good or service at a lower opportunity cost than any other nation. This same principle applies to trade among nations. Because china has a comparative advantage at producing t-shirts and canada has a comparative advantage at producing regional jets, the people of both countries can gain from specialization and trade. Winners, losers, and the net gain from trade. The winners are those whose surplus increases and the losers are those whose surplus deceases. The price in canada falls to the world price. The quantity bought increases to the quantity demanded at the world price and consumer surplus expands. The quantity produced in canada decreases to the quantity supplied at the world price and producer surplus shrinks.