ECON 102 Lecture Notes - Lecture 9: North American Free Trade Agreement, Comparative Advantage, Import Quota

28 views3 pages
21 Mar 2019
School
Department
Course
Professor

Document Summary

Country has a comparative advantage in a good if it produces the good at lower opportunity cost than other countries. Countries can gain from trade if each exports the goods in which it has a comparative advantage. Pw = the world price of a good, price that prevails in world markets. Small economy is a price taker in world markets. When a small economy engages in free trade, pw is the only relevant price. No seller would accept less than pw since you could sell the good for pw in the world markets. No buyer would pay more than pw since you could buy the good for pw in world markets. Whether a good is imported or exported, trade creates winners and losers but the gains exceed the losses. Producers sell to a larger market, may achieve lower costs by producing on a larger scale. Competition from abroad may reduce market power of domestic firms, which would increase total welfare.

Get access

Grade+
$40 USD/m
Billed monthly
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers
Class+
$30 USD/m
Billed monthly
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
7 Verified Answers

Related Documents

Related Questions