UCSB ECON 1 - International trade (43 pages)

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International trade



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International trade

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Pages:
43
School:
University of California, Santa Barbara
Course:
Econ 1 - Principles of Economics-Micro

Unformatted text preview:

International trade Today Winners and losers of various international trade policies Previously we talked about How trade can benefit people Comparative advantage being the core of beneficial trade An introduction of international trade Today More on international trade Review of comparative advantage Examining consumption possibilities Without trade With trade Supply and demand analysis of trade Tariffs and Quotas Outsourcing Review of comparative advantage Recall the principle of comparative advantage Everyone does best when each person or each country concentrates on the activities for which his or her opportunity cost is lowest F B p 39 Today we will apply this concept on a countrywide scale Comparative advantage Same numbers different names Productivity in pizza production Productivity in salad production Unite d State s 20 pizzas cooked per hour 10 salads made per hour Chile 16 pizzas cooked per hour 4 salads made per hour Comparative advantage Opportunity Opportunity cost cost of cooking of making a salad a pizza U S Chile salad salad 2 pizzas 4 pizzas Recall To find comparative advantage for each person find the lowest number in each column Recall increasing opportunity cost Opportunity cost increases as production increases within each country Each country uses its best pizza maker to make its first pizzas Then the next best pizza maker is used etc The same applies to salads Production possibilities curve Recall from last lecture that all of the points along PGQ are the efficient points of the production possibilities curve Recall that this shape occurs due to increasing opportunity costs as more is produced Production possibilities curve Without trade only points along arc PGQ or points between this arc and the origin can be consumed We will see that gains can be made by trade The world market In the world market there is an equilibrium price based on world supply and world demand Any one country that enters or exits the market usually does not change the



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