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International Trade.docx

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Alexander Gainer

World Price and Comparative Advantage Saturday, November 9, 2013 11:25 PM A country has a comparative advantage in a good if the country's opportunity cost of the good is less than the other countries. Pw= world price PD= domestic price without trade If the domestic price of the good is less than the world price • It has a comparative advantage in the good • Under free trade, it will export the good If the world price of the good is less than the domestic price • Country does not have a comparative advantage • Under free trade, the country imports the good. The Small Economy assumption Saturday, November 9, 2013 11:31 PM A small economy is a price taker on the market. It can’t affect the price of the good. When a small company engages in free trade, the world price is the only relevant price. No seller will accept a price that is less than the world price. No buyer will pay more than the world price. Welfare effects of Trade Saturday, November 9, 2013 11:34 PM Imports: Screen clipping taken: 11/9/2013 11:35 PM World price = 1500 Domestic price= 3000 Screen clipping taken: 11/9/2013 11:36 PM Exports: Screen clipping taken: 11/9/2013 11:36 PM Screen clipping taken: 11/9/2013 11:38 PM Other benefits and oppositions to trade Saturday, November 9, 2013 11:38 PM Benefits: • Consumers enjoy a variety of goods. • Producers supply to a larger market, which might reduce costs. • Competition from abroad may reduce the market power of the domestic
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