Comparative Advantage

by Felicia22
Last updated 9 years ago

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Comparative Advantage

Comparative

Advantage

3 & 9

Chapters

Imports and Exports

What is Comparative Advantage & how do you find it?

Comparative Advantage & Opportunity Cost.

~ The comparison among producers of a good according to opportunity costs. (what is given up, based on scarcity of resources, lower the better.) ~David Ricardo - English political economist, established concept of Comparative Advantage. Argues for free trade- Makes everyone better off.~Input and Output problems - input of good goes into, output of goods goes over

~World Price- The world price is the price that is prevailing in the world market.~Exports- Country produces for less than world price. Raise price to meet World Price, demand in country drops creating surplus. Export surplus~Imports- Country produces for morethan world price. Drop price to meet World Price, demand in country raises creating shortage. Import shortage.

~Tariffs- Taxes on businesses for imported goods. Raises domestic price above world price by the amount of the tariff. Quotas- are limits on the amount that may be imported. Arguments for Restricting Trade1.Jobs Argument - jobs are created as well as eliminated 2.National Security-military equipment, produced domestically 3.Infant-Industry- temporary protection so firms have a chance to learn to compete 4.Unfair-Competition-firms sell below cost & subsidize consumption 5.Protection as a Bargaining Chip -restricting trade can be used for leverage in other foreign affairs


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