3 .1 A2 HL Comparative Advantage and Trade. What determines greater efficiency or lower costs?. Costs of production varies between countries because of “ factor endowments ” – types of factors of production a country is “gifted” with. Task: Think of a country’s 2 or 3 major exports
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Costs of production varies between countries because of “factor endowments” – types of factors of production a country is “gifted” with.
Think of a country’s 2 or 3 major exports
The producer that requires a smaller quantity of inputs (in this case, hours of labour) to produce a good is said to have an absolute advantage in producing that good. Does that mean Mrs. Choi has no reason to trade?
2Consider Mr. Jone’s Production – and consumption – Possibilities Frontier
The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good.
Who has the comparative advantage for
a) meat b) potatoes?
The Gains from Trade: Suppose the “terms of trade” is 0.66 Lbs. of meat for 1 Lbs. of Potatoes:using the data below, calculate how much each person has gained.Can you show the new “consumption frontier” after trade (on each PPF) has increased? That’s why it’s good to trade even for Mrs. Choi!
To what extent are these assumptions valid?