POL_SC 1400 Study Guide - Midterm Guide: Free Trade, Factor Endowment, Comparative Advantage
Document Summary
Specialization and division of labor: increases productivity and efficiency, demands access to large markets: international trade depends on the notion of comparative advantage. States gain by specializing in producing and exporting what they produce most efficiently (us exports microchips, colombia exports bananas: protectionism is harmful. Inefficient industries are allowed to develop, prices increase: comparative advantage (all countries have it in something) Absolute advantage: producing a good more efficiently than any other country. Comparative advantage: producing a good at a lower opportunity cost than any other country: efficiency losses and tariffs. Deadweight losses: producers start producing inefficient goods, consumers buy: heckscher-ohlin approach: factor endowments determine comparative advantages. Land, labor, capital for investment, human capital. A country will export goods that make intensive use of the resources the country has in. Common currency, hostility between nations (conflict risks business, countries use trade patterns to solidify alliances), domestic interests: trade restrictions are rule, not exception.
