MGEA01H3 Chapter Notes - Chapter 8: Absolute Advantage, Autarky, Sweatshop

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erinllama288

31 Aug 2015

School

UTSC

Department

Economics for Management Studies

Course

MGEA01H3

Professor

Michael H O

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MGEA01H3 Full Course Notes

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Imports: are goods or services purchased from other countries. Exports: are goods or services sold to other countries. Globalization: is the phenomenon of growing economic linkages among countries. A country has a comparative advantage in producing a good or service if the opportunity cost of producing the good or service is lower for that country than for other countries. Ricardian model of international trade: is a model that analyzes international trade under the assumption that opportunity costs are constant. Autarky: is a situation in which a country does not trade with other countries it is self-sufficient. Relative prices: are the prices of one good in terms of another in international market. The one requirement that the relative price must satisfy is that no country pays a relative price greater than its opportunity cost of obtaining the good in autarky. Gains from trade depends on comparative advantage and not absolute advantage.

Related Questions

Discuss and explain the difference between the two.

The principle upon which Adam Smith first claimed that free trade benefits all countries. It holds that a country benefits from trade when it produces a particular good at a lower cost (in terms of labor input) than it costs to produce the good in any other country. By specializing the in the production and export of this good and importing goods whose production costs are higher than in other countries, the country can consume more of both goods. In trade theories, this principle was later replaced by the principle of comparative advantages.

Comparative Advantage is first fully stated by David Ricardo in the early nineteenth century, this concept holds that a country has a comparative advantage in a good if it can produce that good more cheaply than it can produce other goods. By specializing in the production of goods in which it holds a comparative advantage and importing the other goods, the country can consume more of all goods. In contrast to Adam Smith, therefore, this principle states that a country need not have an absolute advantage in any good to benefit from trade. The principle provides a powerful justification for liberal international trade by asserting that all countries benefit from such trade.

skybee160

The fundamental force driving international trade is comparative:

A. Advantage: a country exports those goods that have high prices

B. Abundance: the country that produces more than it needs exports the good

C. Advantage: the country with the lower opportunity cost of production exports the good

D. Cost: a country trades with other countries that produce cheaper goods

goldcheetah814

The law of comparative advantage states that:

a. each country should specialize in producing the good with the lowest opportunity cost.

b. a country that is able to produce something using fewer resources than other countries would gain from specialization and trade.

c. international trade barriers slow the introduction of new goods and better technologies.

d. countries can gain from trade if production is subject to economies of scale.

e. countries must agree on how much of one good exchanges for another.

turquoiseferret638

MGEA01H3 Chapter Notes - Chapter 8: Absolute Advantage, Autarky, Sweatshop

MGEA01H3 Full Course Notes

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