absolute and comparative advantage n.
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Absolute and Comparative Advantage. Absolute Advantage. A country can produce a product more efficiently than can another country. This can be determined by climate, resources, and location. Ex. Lobster Can you think of other examples?. Comparative Advantage.

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absolute advantage
Absolute Advantage
  • A country can produce a product more efficiently than can another country.
  • This can be determined by climate, resources, and location.
  • Ex. Lobster
  • Can you think of other examples?
comparative advantage
Comparative Advantage
  • The ability to produce a product relatively more efficiently, or at a lower cost.
  • Opportunity cost determines this….how much would one country have to give up to produce a good?
  • Ex. Oil
  • Saudi Arabia
what does this mean in the real world
What does this mean in the real world?
  • Columbian Coffee for US machinery
  • Oil for military aircraft
  • NAFTA tomorrow
tariffs
Tariffs

Protective Tariffs

Revenue Tariffs

  • High enough to protect less-efficient domestic industries.
  • Ex. It costs $1 to produce a pencil in the US but only .35 in another country. How much would they tariff have to be to protect it?
  • High enough to generate revenue but not prohibit the import.
  • Duty taxes…not needed today. Look on page 232.
  • Why is so little gained from this? Why doesn’t the government use it more?
quota
Quota
  • If foreign goods cost so little, then the government can limit the imports.
  • In the past this has worked for cars.
  • What about the future?
arguments for protection
Arguments for Protection
  • Protectionists
    • Favor trade barriers that protect domestic industries
  • Free Traders
    • Favor fewer or even no trade restrictions.