The document discusses the concepts of absolute and comparative advantage between two hypothetical countries, Country A and Country B, that produce only two goods: cloth and wine. It shows that while Country B has an absolute advantage in producing both goods, it has a comparative advantage in cloth while Country A has a comparative advantage in wine due to their opportunity costs of production. This allows for gains from specialization and trade where Country B specializes in cloth and Country A in wine. An acceptable terms of trade is determined between the countries' opportunity costs that makes both better off through trade.
Absolute advantage and comparative advantage theoryLibin George
This slides will give you details about the absolute and comparative advantage theory. The slides are explained with the example, so it will easily help you to understand the theory
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Do all demand curves slope downward?
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How do interest rates affect household saving?
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Presentation for Indifference curve analysis: Ordinal utility approach.
This presentation is made for the purpose of education & knowledge.
in this presentation we got to know about definition of indifference curve, assumption, indifference schedule, indifference curve, marginal rate of substitution, properties of indifference curve
Absolute advantage and comparative advantage theoryLibin George
This slides will give you details about the absolute and comparative advantage theory. The slides are explained with the example, so it will easily help you to understand the theory
The Theory of Consumer Choice - Budget Line & ConstraintFaHaD .H. NooR
Do all demand curves slope downward?
How do wages affect labour supply?
How do interest rates affect household saving?
Do the poor prefer to receive cash or in-kind transfers?
Economics #UCP STUDY MATERIAL
Presentation for Indifference curve analysis: Ordinal utility approach.
This presentation is made for the purpose of education & knowledge.
in this presentation we got to know about definition of indifference curve, assumption, indifference schedule, indifference curve, marginal rate of substitution, properties of indifference curve
The slope of the demand curve
The demand curve generally slopes downward from left to right.
It has a negative slope because of the two important variables price and quantity work in the opposite direction.
The fundamental reasons for the demand curve to slope downward are as follows:
Law of Diminishing Marginal Utility
Law of Equi-Marginal Utility
Income Effect
Substitution Effect
measuring the cost of living
Consumer Price Index
How the CPI Is Calculated
Problems with the CPI
Contrasting the CPI and GDP Deflator
Correcting Variables for Inflation:
Slides include the animated graphical presentation of the hicksian and slutsky approach to split the total price effect into income and substitution effect.
The slope of the demand curve
The demand curve generally slopes downward from left to right.
It has a negative slope because of the two important variables price and quantity work in the opposite direction.
The fundamental reasons for the demand curve to slope downward are as follows:
Law of Diminishing Marginal Utility
Law of Equi-Marginal Utility
Income Effect
Substitution Effect
measuring the cost of living
Consumer Price Index
How the CPI Is Calculated
Problems with the CPI
Contrasting the CPI and GDP Deflator
Correcting Variables for Inflation:
Slides include the animated graphical presentation of the hicksian and slutsky approach to split the total price effect into income and substitution effect.
• International Trade, basic concepts, Classical Trade Theories, Adam Smith, David Ricardo, foreign trade, specialization, efficient resource allocation, new technologies, skills, higher productivity, assumptions, two countries, perfect mobility, Transportation cost, resources are equally divided, Theory of Mercantilism, Father of Economics, Wealth of Nations, Western European economic, encourage export and discourage import, balance of export minus import, subsidies and taxes, gold was used for trading goods, abundant gold, selfish trade, zero-sum game, Theory of Absolute Advantage, one factor of production, labour, services available to their citizens, cheaper, beneficial for both the countries, specialization, Theory of Comparative Advantage, David Ricardo, absolute advantage in all the products, zero transport cost, no trade barriers, diseconomies, restrict trade.
Subsidy for SUV's and December's Increase in Demand for Large VehiclesGene Hayward
The depreciation inventive for the purchase of SUV's was increased from $25,000 to $500,000 in December 2014. This PPT shows, with Supply and Demand graphs, how this affected the market.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
Empowering the Unbanked: The Vital Role of NBFCs in Promoting Financial Inclu...Vighnesh Shashtri
In India, financial inclusion remains a critical challenge, with a significant portion of the population still unbanked. Non-Banking Financial Companies (NBFCs) have emerged as key players in bridging this gap by providing financial services to those often overlooked by traditional banking institutions. This article delves into how NBFCs are fostering financial inclusion and empowering the unbanked.
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
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2. Absolute and Comparative
Advantage
O The US produces some bananas for
domestic consumption, but not enough to
satisfy total demand for bananas.
O Question: Could we produce enough IF we
REALLY wanted to? Yes, we could probably
even produce MORE bananas than, say,
Guatemala where they grow easily. We
have the technology and know-how BUT is
it a good idea to use our scare resources to
do so?
3. Absolute and Comparative
Advantage
O Guatemala produces some medicines for
domestic consumption, but not enough to
satisfy total demand for medicines.
O Question: Could they produce enough IF
they REALLY wanted to? Yes, they probably
could produce enough for domestic
consumption BUT is it a good idea to use
their scare resources to do so?
4. Absolute and Comparative
Advantage
O A BETTER IDEA!!
O Why don’t the US and Guatemala specialize in
what they produce MORE efficiently rather
than use scarce societal resources to produce
something they are not so good at producing,
and then TRADE with each other?
O THIS is the fundamental principle behind the
concept of COMPARATIVE ADVANTAGE
O Are you ready to see how this works???
5.
6. Absolute and Comparative
Advantage
O What follows is an analysis of 2
economies---Country “A” and Country “B”.
Assume they produce just 2 goods:
O Cloth
O Wine
O Assume each country has different
resources that vary in quantity and quality
to produce these 2 goods
7. Given its resource endowment, if
Country “A” allocates all it resources
to the production of Cloth, it can
produce 10 yards of cloth.
8. Given its resource endowment, if
Country “A” allocates all it resources
to the production of Wine, it can
produce 20 gallons of Wine.
9. If we connect these two extreme points
will have a Straight Line PPF. Country “A”
has the ability to produce combinations
of Cloth and Wine anyplace ON this PPF
10. Let’s assume Country “A” chooses to produce a
balance of Cloth and Wine with their given
resources. They make the Allocative Efficiency
decision to produce 5 yards of Cloth and 10
gallons of Wine
11. Given its resource endowment, if
Country “B” allocates all it resources
to the production of Cloth, it can
produce 20 yards of cloth.
12. Given its resource endowment, if
Country “B” allocates all it resources
to the production of Wine, it can
produce 20 gallons of Wine.
13. If we connect these two extreme points
will have a Straight Line PPF. Country “B”
has the ability to produce combinations
of Cloth and Wine anyplace ON this PPF
14. Let’s assume Country “B” chooses to produce a
balance of Cloth and Wine with their given
resources. They make the Allocative Efficiency
decision to produce 10 yards of Cloth and 10
gallons of Wine
15. The first concept we want to define is ABSOLUTE
ADVANTAGE.
Absolute Advantage: Given its respective societal resources
which country, in absolute terms, can produce more of one
good than the other country.
16. Look at cloth production for each country. “A” can produce 10 yards
of cloth if it allocated all of its scarce resources to the production of
cloth. “B” can produce 20 yards of cloth if it allocates all of its scarce
resources to the production of cloth.
Country “B” can ABSOLUTELY produce more cloth than “A”
Country “B” is said to have the ABSOLUTE ADVANTAGE in the
production of Cloth
17. Look at wine production for each country. “A” can produce 20 gallons
of Wine if it allocated all of its scarce resources to the production of
wine. “B” can produce 20 gallons of Wine if it allocates all of its
scarce resources to the production of Wine.
In this case NEITHER country has produces more Wine that the other
Neither country is said to have the ABSOLUTE ADVANTAGE in the
production of Wine
18. Currently each country is in a state of
“Autrarky”. This is a fancy way of saying
they are Closed Economys and they do
not engage in trade---they are “self-
sufficient”
19. Assume each country is exploring the possibility of engaging in trade with each other. However,
they are not sure which good, cloth or wine, they are better (or more efficient) at producing
relative to the other country.
In other words, is there one good that each country would be better off specializing
in and then trading some of it away for the good they are not so efficient at
producing?
To help them decide, we are going to (1) calculate their “internal” opportunity costs of
producing each good and (2) then compare those Opportunity Costs relative to EACH OTHER
across their borders.
20. The first thing we want to do is organize our production data for each country. I like
to use this graphic organizer below. Notice I have put each countries production
data (from the Graphs) in the appropriate category and inserted blank boxes where
we are going to calculate our Internal Opportunity Costs. We will then use those
Opportunity Costs to compare each country across borders---The RED line
represents the border between Country “A” and “B”.
21. Our first calculation will be to calculate Country “A”’s Opportunity Cost of producing
Cloth in terms of Wine.
In other words, to get cloth how much in wine production does “A” have to give up.
Below we set 10 Cloths “10C” to 20 Wines “20W”
22. If we divide both sides by 10 we will reduce our ratio to a single unit on the left side. This
Is what we want---to see how much of the other good (Wine) we have to give up in order
to get ONE yard of Cloth. When we divide “20W” by 10 we get “2W” or 2 Wines.
So, for Country “A” to produce 1 yard of Cloth they must give up 2 gallons of Wine.
23. Now, we want to move to the Right and calculate Country “A”’s Opportunity Cost of
Producing Wine in terms or Cloth---this IS just the reciprocal of what we just did for Cloth
in terms of Wine.
We set the ratio “20W = 10C”
24. If we divide both sides by 20 we will reduce our ratio to a single unit on the left side. This
Is what we want---to see how much of the other good (Cloth) we have to give up in order to
get ONE gallon of Wine. When we divide “10C” by 20 we get “.5W” or .50 (half) Wines.
So, for Country “A” to produce 1 gallon of Wine they must give up .5 yards of Cloth.
25. Now, lets move ACROSS the border to Country “B” and perform the SAME math as we did for
County “A”. Remember, we are calculating each countries internal Opportunity Costs of
Producing one good in terms of the other.
Country “B”’s Opportunity Cost of Producing Cloth in terms of Wine is “20C = 20W”
26. Divide each side by 20 and we are left with a simplified ratio of:
“1C = 1W”
Country “B”’s Opportunity Cost of producing 1 yard of Cloth is 1 gallon of
Wine given up
27. Move over to the Right side and calculate Country “B”’s Opportunity Cost of
Producing Wine in terms of Cloth---remember, it is the reciprocal of the left side.
“20W = 20C” Divide each side by 20
28. Divide each side by 20 and we are left with a simplified ratio of:
“1W = 1C”
Country “B”’s Opportunity Cost of producing 1 yard of Cloth is they
have to give up 1 gallon of Wine
29. Ok, we have calculated the INTERNAL Opportunity Costs for
producing Cloth and Wine for both “A” and “B”. What’s next?
Comparative Advantage
Now, we want to “Head for the Border” and compare each
countries Opportunity Costs for producing a good.
Let’s look just at Cloth right now…
30. To Determine which country has the Comparative Advantage in the production
of Cloth, you want to ask yourself the following question:
Which country produces Cloth at the LOWEST OPPORTUNITY COST?
Look at the TWO Opportunity Cost ratios we have calculated.
Country “A” produces a yard of cloth at the expense of 2 gallons of Wine
Country “B” produces a yard of cloth at the expense of 1 gallon of Wine.
Given there respective resource endowment, which country can produce cloth
at the lowest Opportunity Cost?
31. ….That would be Country “B”.
To produce 1 yard of Cloth they have to give up only 1 gallon of Wine
whereas Country “A” produces 1 yard of Cloth they have to give up 2
gallons of Wine. So, just in terms of resources given up:
COUNTRY “B” IS MORE EFFICIENT AT PRODUCING CLOTH THAN
COUNTY “A” therefore….
Country “B” should NOT produce Wine at all and SPECIALIZE in the
production of CLOTH. They should EXPORT Cloth and IMPORT Wine
Country “B” is said to have the Comparative Advantage in the
Production of Cloth…
32. Are you STILL not sure how to find the Country with the
Lowest Opportunity Cost in CLOTH?
Let me give you a hint. Just look at the numbers to the
RIGHT of the equal sign.
Which one is SMALLER---”2W” or 1W”???
Easy Cheesy! “1W” is smaller so Country “B” produces Cloth
at the Lower Opportunity Cost
33. Now, lets look at Wine. Same analysis as for Cloth.
Which country produces Wine at the LOWEST OPPORTUNITY COST?
Look at the TWO Opportunity Cost ratios we have calculated on the Right
Country “A” produces a gallon of Wine at the expense of .50 yards of Cloth
Country “B” produces a gallon of Wine at the expense of 1 yard of Cloth
Given there respective resource endowment, which country can produce wine
at the lowest Opportunity Cost?
34. ….That would be Country “A”.
To produce 1 gallon of WIne they have to give up only .50 yards
of Cloth whereas Country “B” produces 1 gallon of Wine they
have to give up 1 Cloth
So, just in terms of resources given up:
COUNTRY “A” IS MORE EFFICIENT AT PRODUCING WINE THAN
COUNTY “B” therefore….
Country “A” should NOT produce CLOTH at all and SPECIALIZE
in the production of WINE. They should EXPORT Wine and
IMPORT Cloth
Country “A” is said to have the Comparative Advantage in the
Production of Wine…
35. Are you STILL not sure how to find the Country with the
Lowest Opportunity Cost in WINE?
Let me give you a hint. Just look at the numbers to the
RIGHT of the equal sign.
Which one is SMALLER---”.50C” or 1C”???
Easy Cheesy! “.50C” is smaller so Country “A” produces Wine
at the Lower Opportunity Cost
36. What now?
We have determined that Country “A” has the Comparative
Advantage in the production of Cloth. They should specialize
in producing Cloth and give up the production of Wine.
We have determined that Country “B” has the Comparative
Advantage in the production of Wine. They should specialize
in producing Wine and give up the production of Cloth.
37. On the above graphs, we illustrate this SPECIALIZATION. The RED circles show the amount
the country is going to produce and there is a RED line through the amount of the good the
country is NO LONGER going to produce
38. Look just at Country “A”. They now produce 20 gallons of Wine BUT they only
Want to CONSUME 10 gallons. This means they have a SURPLUS of 10 gallons
Of Wine leftover that is available to trade away (EXPORT)---IF the price is right!
5 Gallons of Wine
To trade away
39. Look just at Country “B”. They now produce 20 yards of Cloth BUT they only
Want to CONSUME 10 yards of Cloth. This means they have a SURPLUS of 10 yards
Of Cloth leftover that is available to trade away (EXPORT)---IF the price is right!
5 Gallons of Wine
To trade away
10 yards of cloth
To trade away
40. Now that these two countries are “ALL IN” in terms of Specialization, they must settle on
some acceptable TERMS OF TRADE.
In other words, they have to agree on a PRICE that works for each country to commit
to specialize and make it worthwhile for them to SELL what they produce and BUY what
they don’t produce.
Read the following 2 points CAREFULLY:
(1) If I produce something, I want to SELL it for MORE than what it costs me to produce it.
(2) If I am going to BUY something, I want to BUY it for LESS than what I can produce it for.
15Gallons of Wine
To trade away
10 yards of cloth
To trade away
41. 10 Gallons of Wine
To trade away
10 yards of cloth
To trade away
Determining Acceptable Terms of Trade
Lets look at CLOTH. Country “B” produces 1 yard of Cloth at a cost of 1 Wine.
If they can sell a yard of Cloth for MORE than 1 Wine then they are better off.
Country “A” produces a yard of Cloth at a cost of 2 Wines. If they can BUY a yard of Cloth
For LESS than the 2 Wines if costs them to produce then they are better off.
BOTTOMLINE: An Acceptable TERM OF TRADE will by ANY ratio of Cloth to Wine BETWEEN
The 2 countries Opportunity Costs of producing Cloth.
A Term of Trade ABOVE “1C=1W” and BELOW “1C = 2W”
42. 10 Gallons of Wine
To trade away
10 yards of cloth
To trade away
Determining Acceptable Terms of Trade
Lets look at CLOTH. Country “B” produces 1 yard of Cloth at a cost of 1 Wine.
If they can sell a yard of Cloth for MORE than 1 Wine then they are better off.
Country “A” produces a yard of Cloth at a cost of 2 Wines. If they can BUY a yard of Cloth
For LESS than the 2 Wines if costs them to produce then they are better off.
BOTTOMLINE: An Acceptable TERM OF TRADE will by ANY ratio of Cloth to Wine BETWEEN
The 2 countries Opportunity Costs of producing Cloth.
A Term of Trade ABOVE “1C=1W” and BELOW “1C = 2W”
**Use the SAME methodology for Wine**
Country “A” has the Comparative Advantage in the production of Wine.
An Acceptable Term of Trade will be a ratio of Wine to Cloth
Between “1W=.50C” for Country “B” and “1W = 1C” for Country “A”
43. 10 Gallons of Wine
To trade away
10 yards of cloth
To trade away
GOT THAT????
Lets go back to Cloth and see how this works for Country “B”.
Assume the Terms of Trade are “1C = 1.5W”
Notice this is IN BETWEEN each countries Opportunity Costs.
If Country “B” trades away the SURPLUS 10 yards of Cloth it has they
will receive 1.5 gallons of Wine for each Cloth
So, after Country “B” sells their Cloth to Country “A” they will now
Be able to “consume” 15 gallons of Wine (10 yards of Cloth X 1.5 Wines)
44. 10 Gallons of Wine
To trade away
10 yards of cloth
To trade away
Country “B” STILL consumes 10 yards of cloth
they produced,
BUT they trade (export) away the surplus 10
yards for 1.5 Wines each for a total of 15
gallons of Wine (Import). They now
Are consuming a combination of Cloth and
Wine OUTSIDE of their ability to produce
it WITHOUT Specialization and Trade.
The people of Country “B” are clearly better
off because they get to enjoy the amount of
cloth they want to consume PLUS extra Wine!
15
“B”
45. How is this going to work our for Country “A”?
Acceptable Terms of Trade will be a ratio of Wine to Cloth between “1 W =.50C” And “1W = 1C”.
Hint: If we take the RECIPROCAL of the terms of trade we used for Cloth it will fall in between the
ratio we are looking for here.
The Reciprocal of “1C = 1.5W” is:
“1W = .67C”
Country “A” can SELL 1 gallon of Wine and get .67 yards of cloth for each gallon.
46. If Country “A” sells (EXPORTS) its surplus 5 gallons of Wine (it still
keeps 5 gallons for its own consumption) and can receive .67
Cloths for each gallon (IMPORT) then it can consume 6.7 yards of
Cloth (10 Wines X .67Cloths) It can now CONSUME a
combination of Cloth and Wine (Point “A”) GREATER than it
could before specialization and trade.
Country “A” is better off as well!!
6.70
“A”
15
47. 5 Gallons of Wine
To trade away
10 yards of cloth
To trade away
15
“B”
6.70
“A”
REMEMBER: The Terms of Trade MUST fall in between each countries
Opportunity Cost of producing the goods.
If is falls outside, on the low side or the high side, then trade will not
Be advantageous for BOTH countries.
Example follows
48. 5 Gallons of Wine
To trade away
10 yards of cloth
To trade away
15
“B”
6.70
“A”
Assume the Terms of Trade were “1C = 3W” or “1W = .33C” (reciprocals)
This means Country “B could sell 10 yards of Cloth and get 30 Wines.
They are CLEARLY better off because they consumer 10 yards of Cloth
And 30 gallons of Wine
What about Country “A”?
49. 5 Gallons of Wine
To trade away
10 yards of cloth
To trade away
15
“B”
6.70
“A”
Assume the Terms of Trade were “1C = 3W” or “1W = .33C” (reciprocals)
Country “A” at the current terms of trade would sell it surplus 5 yards of Cloth
For .33 gallons of Wine for a total of 1.65 gallons of Wine.
WITHOUT TRADE, Country “A” produces 5 gallons of wine with its resources.
These terms of trade are NOT Advantageous to “A” so trade will not occur
50. 6.70
“B”
“A”
15
Summation:
Even if a country, given its resource endowment, can produce
more of a good relative to what another country can produce
with its resource endowment, BOTH countries can benefit by
specializing in the production of the good in which they have the
COMPARATIVE ADVANTAGE.
“Do what you do best and trade for the rest”