ECO100Y5 Chapter Notes - Chapter 8: Autarky, Comparative Advantage, International Trade

• School: UTM
• Department: Economics
• Course: ECO100Y5
• Professor: Michael H O

Document Summary

Goods and services purchased from other countries are imports; goods and services sold to other countries are exports. Globalization is the phenomenon of growing economic linkages among countries. To understand why international trade occurs and why economists believe it is bene cial to the economy, we will. The following graph illustrates the growing importance of international trade. Increasing global trade: the growing importance of global trade. The ricardian model of international trade analyzes international trade under the assumption that opportunity costs are constant. Autarky is a situation in which a country cannot trade with other countries: the following gure shows hypothetical production possibility frontiers for canada and mexico. We assume that: (1) there are only two goods and (2) the production possibility frontiers are straight lines. The ricardian model of international trade shows that trade between two countries makes both countries better off than they would be in autarky that is, there are gains from trade.