BU111 Chapter Notes - Chapter 9: Market Power, Comparative Advantage, Opportunity Cost
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BU111 Full Course Notes
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Econ120 micro, natasha park: country has comparative advantage if it produces good at lower opportunity cost than others. Countries gain from trade if each exports the goods in which it has comparative advantage. World price: pw = the world price of a good, the price that prevails in world markets, pd = domestic price without trade. If pd < pw if pw < pd. Country has comparative advantage in good country doesn"t have comparative. Under free trade, the country exports the good under free trade, country imports the advantage good. Small economy assumption: a small economy is a price taker in world markets its actions have no effect on pw. Not always true, but simplifies the analysis: when an economy engages in free trade, pw is the only relevant price. No seller accepts less than pw, no buyer would pay more than pw. A tax that is charged on imported goods. Imports were q1-q2: after the tariff: (pw+t)
