Ch 17 notes

Absolute advantage – more produced than other countries

Comparative – produced at lower opportunity cost than other countries
Both countries have gains from trade when they each have comparative
advantages

Without specialization and trade, every country produces on its PPF

With “ “ “ they can consume more
Comparative advantage: Characteristics that affect:
Technology, Factor Endowment, Natural resources and climate
Tech: U.S has advantage in producing best airplanes, etc
Factor: New Zealand has more land in comparison to Qatar to produce meat
Natural Resources: Hawaii has a better climate to produce pineapples than
Russia
Trades are not free. It is a political issue. There are trade agreements
Specialization isn’t complete anywhere.

An economy that is self-contained and does not engage with outsiders is in autarky
economy.
Under autarky, an economy doesn’t export or import any goods or services
If the world price is less than the autarky domestic price, domestic price
decreases to equal world price, excess demand occurs
Imports make up the difference between domestic supply and demand,
eliminating shortage
Clickers
1. D – B3
2. E
3. C – Gain from free trade ( economy with free trade )
Producers export their goods and services when the world price is greater than the
domestic price.

See export slide

If a country is relatively “big” then it can influence the world price.
Restrictions on trade
Different impacts on different groups of people
Protectionism – is a preference for policies that limit trade
Trade liberalization – is policies and actions that reduce trade restrictions
A tariff is a tax targeted at certain imports. The purpose is to reduce the quantity of
imports to protect domestic producers. It’s a tax per unit.
Two effects: Increases the world price for domestic consumers
Decreases the amount of shortage made up by imports
See tariff slide
A quota is a limit on the amount of a particular good that can be imported
Quota rents are profits earned by foreign firms or governments under a quota.
Effects: Decreases imports
Increases import price