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310 lecture 3

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310 lecture 3

  1. 1. International Economics Lecture 3 Trade-offs,Comparative Advantage,and the Market System
  2. 2. Yabut
  3. 3. IntentResult
  4. 4. Fell Pushed JumpedResult the same
  5. 5. SlopePercentage Change Relationships Cause and Effect Areas
  6. 6. Notation% Percent Change% Percentage Change
  7. 7. % Percentage Change New - Old Old
  8. 8. % Percentage Change New - Old Old7-5 5
  9. 9. % Percentage Change New - Old Old7-5 = 5
  10. 10. % Percentage Change New - Old Old7-5 = 2 5 5
  11. 11. % Percentage Change New - Old Old7-5 = 2 = 5 5
  12. 12. % Percentage Change New - Old Old7 - 5 = 2 = .4 5 5
  13. 13. % Percentage Change New - Old Old7 - 5 = 2 = .4 = 5 5
  14. 14. % Percentage Change New - Old Old7 - 5 = 2 = .4 = 40% 5 5
  15. 15. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old
  16. 16. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old9-6 6
  17. 17. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old9-6 = 6
  18. 18. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old9-6 = 3 6 6
  19. 19. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old9-6 = 3 = 6 6
  20. 20. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old9 - 6 = 3 = .5 6 6
  21. 21. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old9 - 6 = 3 = .5 = 6 6
  22. 22. Last year the price was $6.This year the price is $9.What is the percentage change?New - Old Old9 - 6 = 3 = .5 = 50% 6 6
  23. 23. Y X
  24. 24. Price Y X Quantity
  25. 25. $Price Y X Quantity Q
  26. 26. $ Q
  27. 27. $ Q
  28. 28. $ Q
  29. 29. $ Q
  30. 30. $ Q
  31. 31. $ Q
  32. 32. Opportunity Cost
  33. 33. Opportunity CostThe highest valued alternative
  34. 34. Absolute Advantage Produce more with the same resourcesComparative Advantage Produce at a lower opportunity cost
  35. 35. David Ricardo (1772 - 1823) Principles of Political Economy and TaxationComparative Advantage
  36. 36. The basis for trade iscomparative advantage, not absolute advantage.
  37. 37. No Trade 2 Hooks and 2 Fish 10 Hours - 5 Hours per Fish Total Adam Eve HoursMake a 3 2 5HookCatch 4 1 5a Fish Total 7 3 10Hours
  38. 38. With Trade 2 Hooks and 2 Fish 8 Hours - 4 Hours Per Fish Total Adam Eve HoursMake a 2 hooks 6Hook 6 hoursCatch 2 fish 2a Fish 2 hours Total 6 2 8Hours
  39. 39. Saudi Idaho
  40. 40. Saudi Arabia Idaho Dates Potatoes Dates Potatoes 24 0 6 0 20 1 5 5 16 2 4 10 12 3 3 15 8 4 2 20 4 5 1 25 0 6 0 30 Ratios Ratios 24 to 6 6 to 304 Dates for 1 Potato 1/5 Dates for 1 Potato 6 to 24 30 to 61/4 Potato for 1 Date 5 Potatoes for 1 Date
  41. 41. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 12 9 6 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  42. 42. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 12 9 6 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  43. 43. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 Saudi PPF 12 9 6 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  44. 44. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 Saudi PPF 12 Dates Potatoes 6 0 5 5 9 4 10 3 15 6 2 20 1 25 3 0 30 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  45. 45. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 Saudi PPF 12 Dates Potatoes 6 0 5 5 9 4 10 3 15 6 2 20 Idaho PPF 1 25 3 0 30 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  46. 46. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 Saudi PPF 12 Dates Potatoes 6 0 5 5 9 4 10 3 15 6 2 20 Idaho PPF 1 25 3 0 30 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  47. 47. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 Saudi PPF 12 Dates Potatoes 6 0 5 5 9 4 10 3 15 6 2 20 Idaho PPF 1 25 3 0 30 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  48. 48. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 Saudi PPF 12 Dates Potatoes 6 0 5 5 9 4 10 3 15 6 2 20 Idaho PPF 1 25 3 0 30 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  49. 49. Dates Should Idaho and Saudi Trade? 27 Dates Potatoes 24 24 0 20 1 21 16 2 12 3 8 4 18 4 5 0 6 15 Saudi PPF 12 Dates Potatoes 6 0 5 5 9 4 10 3 15 6 2 20 Idaho PPF 1 25 3 0 30 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  50. 50. Internal Dates Potatoes Price Idaho 5 Potatoes 1/5 Date Saudi 1/4 Potato 4 Dates
  51. 51. Internal Dates Potatoes Price Idaho 5 Potatoes 1/5 Date Saudi 1/4 Potato 4 Dates
  52. 52. Internal Dates Potatoes Price Idaho 5 Potatoes 1/5 Date Saudi 1/4 Potato 4 Dates
  53. 53. No Trade Dates Potatoes Idaho 3 15 Saudi 12 3 Total 15 18
  54. 54. Specialize Dates Potatoes Idaho 0 30 Saudi 24 0 Total 24 30
  55. 55. Analysis Dates PotatoesNo Trade 15 18 TotalsSpecialize 24 30 Totals Gain +9 +12
  56. 56. Trade Dates Potatoes Idaho 3 to 12 = +9 15California 12 3 to 15 = +12 Total 24 30
  57. 57. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 12 9 6 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  58. 58. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 Saudi PPF 12 9 6 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  59. 59. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 Saudi PPF 12 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  60. 60. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 Saudi PPF 12 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  61. 61. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 Saudi PPF 12 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  62. 62. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 Saudi Trade PPF PPF 12 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  63. 63. Dates Should Idaho and Saudi Trade? 27 24 21 18 15 Saudi Trade PPF PPF 12 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  64. 64. Dates Should Idaho and Saudi Trade? 27 Idaho 24 gains 9 Dates 21 18 15 Saudi Trade PPF PPF 12 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  65. 65. Dates Should Idaho and Saudi Trade? 27 Idaho 24 gains 9 Dates 21 18 15 Saudi Trade California PPF PPF gains 12 12 potatoes 9 6 Idaho PPF 3 0 0 3 6 9 12 15 18 21 24 27 30 Potatoes
  66. 66. MarketsWhere Buyers and Sellers Trade
  67. 67. The Market System TrustPrivate Property Rights Rule of Law
  68. 68. Why are some rich andothers poor?

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