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International Economics

International Trade, Absolute Advantage, Comparative Advantage

Amy Lee

on 3 November 2012

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Transcript of International Economics

photo credit Nasa / Goddard Space Flight Center / Reto Stöckli International Trade Specialization and Trade You have learned that
specialization increases
the total amount of things
a society can produce and leads
to efficient use of resources.
...and since we specialize, we must trade.

Then everyone benefits. Regions and Nations also Specialize Comparative Advantage Absolute
Advantage Natural, labor, and capital Nations specialize in producing things they can make most cheaply and easily.
This depends on the country's available resources. Nations then sell their specialized products to other nations (exports) and buy things from other nations (imports) that they can't produce easily themselves. Trade-
Exports and Imports Is it a good idea to buy those new shoes just because you have the money?
What would you be giving up if you do? Think Back to Opportunity Cost When a country can produce MORE than another country, they have the absolute advantage. Absolute Advantage EX:
South America can produce more coffee than the US.
The US can produce more sugar than Nicaragua.

Does this mean that the US should produce sugar and not import it from Nicaragua?
Sugar Fertilizer US Nicaragua 100 70 50 80 (cc) image by anemoneprojectors on Flickr Total 150 150 Who has absolute advantage?
Who has comparative advantage? 200 Sugar Fertilizer US Nicaragua 200 200 0 0 TOTAL 200 What if the US Specialized in Sugar and Nicaragua Specialized in Fertilizer? What happens to the amount of sugar and fertilizer available? Trade Exports
Imports Comparative Advantage The country that can produce a good at the lowest opportunity cost. (giving up the least)
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