POL208Y1 Study Guide - Final Guide: World Trade Organization, General Agreement On Tariffs And Trade, Garrett Hardin
Document Summary
The absolute advantage of free trade smith. Price of ton of wheat in uk = 2. 5 tons of iron. Price of ton of wheat in us = 0. 75 of iron. Price of ton of iron in uk = 0. 4 tons of wheat. To get 4 tons of wheat in the uk give up 10 tons of iron, if there is trade with the us, for 10 tons of iron the uk can buy 13. 33 tons of wheat. It should specialize and trade: the world would benefit too, both production of wheat and iron increase by 10,000 units. David rocardo says, gains from trade : states differ in ability to product certain goods, no need for absolute advantage in productivity. Global welfare is maximized if everyone chooses free trade. Each nations welfare is maximized by unilateral free trade. However, some countries win more than others. Similarly within a country f4ree trade benefits some and hurts others.
