Economics 2150A/B Study Guide - Quiz Guide: Absolute Advantage, Relative Price, Razorbill

• School: Western University
• Department: Economics
• Course: Economics 2150A/B
• Professor: Colin Denniston

Document Summary

Theories of trade: models emphasizing differences between countries as the main driver of trade. Difference in labor skills, natural resources, physical, and technological create productive advantages for countries: models emphasizing economies of scale. No a priori differences between countries, but more efficient if each country specializes in a (few) products only, benefitting from economies of scale. To understand the causes and effects of trade it"s useful to look at models that focus on one particular motive for trade separately. Trade arises because of differences in relative labor productivity between countries. Opportunity costs: the costs of not being able to produce something because resources have already been used to produce something else. Comparative advantage: a country has a comparative advantage in producing a good if the opportunity cost of producing that good is lower in that country than in other countries.