Textbook Notes (363,559)
Canada (158,426)
Economics (479)
ECO230Y1 (4)
Chapter 3

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University of Toronto St. George
Junchul Kim

Chapter 3: Countries engage in intl trade for 2 basic reasons: 1. countries trade bc they are different from each other 2. countries trade to achieve economies of scale in production Comparative Advantage: - there is a tradeoff, i.e. in order to produce one good, the economy must produce less of other thingsopportunity cost; e.g. the opportunity cost of roses in terms of computers is the number of computer that could have been produced with the resources used to produce a given number of roses - the difference in opportunity costs offers the possibility of a mutually beneficial rearrangement of world production * a country has a comparative advantage in producing a good if the opportunity cost of producing that good in terms of other goods is lower in that country than it is in other countries. (because the world output is increased by specializing, then in principle everyones standard of living is improved) ** Trade bw 2 countries can benefit both countries if each country exports the goods in which it has a comparative advantage. Ricardian Model: - international trade is solely due to international diff in the productivity of labour - unit labour requirement: no of hrs of labour required to produce one unit of output Production Possibility Front
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