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Module Comparative Advantage and Trade

4. Module Comparative Advantage and Trade. KRUGMAN'S MACROECONOMICS for AP*. Margaret Ray and David Anderson. Housekeeping. Read Module 4 – do C/U and tackle the test. Quiz early next week on comparative advantage. What you will learn in this Module :.

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Module Comparative Advantage and Trade

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  1. 4 ModuleComparativeAdvantage and Trade • KRUGMAN'S • MACROECONOMICS for AP* Margaret Ray and David Anderson

  2. Housekeeping • Read Module 4 – do C/U and tackle the test. • Quiz early next week on comparative advantage.

  3. What you will learnin thisModule: • How trade leads to gains for an individual or an economy • The difference between absolute advantage and comparative advantage • How comparative advantage leads to gains from trade in the global marketplace

  4. Why do nations trade? ????

  5. Why do Nations Trade? • Specialization leads to…. • Gains from trade PROVE IT!

  6. Absolute Advantage

  7. Pairs – What would you do? • One player - OR • Other player - WA

  8. Absolute Advantage Terms of Trade 1 apple for 1 timber 20 20

  9. Gains from Trade

  10. Absolute Advantage Country has an absolute advantage when it can produce more of a good than other countries with the same amount of resources.

  11. Comparative Advantage Lawn mowing example: Lawn Mowing

  12. Comparative Advantage Comparative advantage arises because two parties have different opportunity costs.

  13. Should WA Trade?

  14. Pairs – What would you do? • One player - OR • Other player - WA

  15. Should WA Trade? Terms of trade 2 timber for 1 apple 10 20

  16. Terms of trade Terms of trade is the amount of one product exchanged for another expressed as a ratio. This ratio will lie between the opportunity costs for each trading partner.

  17. Summary of Key Concepts • Absolute Advantage • Comparative Advantage • Terms of Trade

  18. Fish and Chips

  19. More Practice • NZ and Spain • China and USA

  20. Input Oriented Problems Absolute advantage? Comparative advantage? Gains from trade?

  21. Convert input questions into opportunity costs. Montclair has a comparative advantage in coffee, and Livingston has one in donuts.

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