Comparative Advantage and Trade

Opportunity costs apply to production and consumption

Comparative advantage in good where they have lower opportunity cost

To determine comparative advantage; calc opportunity cost for each person, for each good compare opportunity cost, person with lower opportunity cost has comparable advantage 

Same person will not have comparative advantage in both goods, if opportunity costs are they same, there will be no comparable advantage 

Absolute advantage; when they are more productive for that good 

Comparable advantage = lower opportunity cost 

absolute advantage= more efficient 

Free trade and globalization:

Barriers to trade-tariffs, quotas, non-tariff barriers 

Advantages to globalisation; increased output, competition, variety of goods, lower prices, prosperity

Arguments against; revenue unfair competition, protecting infant industries 

It changes distribution of jobs, loss in protected industries, gains elsewhere

Suppressing luxuries; consumption tax 

Infant industry argument: tariffs hurt consumers 

National security concerns 

Tariffs are not easier to collect than any other tax