W12: international trade

NEED TO LOOK OVER PPF TABLES

can be benifical to other countries

Production Possibilities Frontier – the combinations of maximum output of two goods, abs& compar advantage

Autarky

self-sufficient economy

goods & cost production:

some countries use more goods to produce certain goods, therefore makes more sense to trade goods they can make more of for the goods they can make less of

PPF & opportunity cost

The slope of the PPF indicates the opportunity cost of producing one good versus the other good, analyze what production and consumption are without trade

absolute advantage

Being able to produce a good with fewer resources per unit When different players have absolute advantage, they should specialize in producing the good they have the AA in

produce more of …

the good than they need for consumption→ sell (export) the surplus

produce less of

the other good (in which they do not have the AA) than they need for the consumption → buy (import) the shortage

trade exchange rate

Determined by the respective opportunity costs

comparative advantage

Being able to produce a good at a lower opportunity cost as another producer

When one player has absolute advantage in both goods..

they should specialize in producing the good they have the Comparative advantage in

how to draw PPF

you take the numerical information from the table and use it to plot the individual points on a graph. You can then connect the points that were drawn to give you the complete PPF.

how to calculate PPF table