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Module 4

Module 4 . Gains from Trade : Comparative Advantage Paper and Pencil out for Quiz. 1. How does trade lead to gains for an individual or an economy? 2. What is the difference between absolute advantage and comparative advantage?

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Module 4

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  1. Module 4 Gains from Trade : Comparative Advantage Paper and Pencil out for Quiz

  2. 1. How does trade lead to gains for an individual or an economy? • 2. What is the difference between absolute advantage and comparative advantage? • 3. How does comparative advantage lead to gains from trade in the global marketplace? M4 Quiz

  3. Due to specialization, 2 people or 7 billion, benefit from trade because they get more of what they want. • Instead of doing 2 tasks crappy, let me do one, you do the other, and we trade some of what we made. We will each produce more and end up with more of both items than if we did them crappy by ourselves. How Does Trade Lead to Gains

  4. Absolute Advantage – who can produce more • Comparative Advantage – who can produce with the lower opportunity cost. Difference in Comparative and Absolute Advantage

  5. Both parties who practice trade based on comparative advantage will be allowed to consume resources outside of their respective PP Curves. Comparative Advantage and gains in the Global Marketplace

  6. How do we arrive at these opportunity costs for Tom and Hank? • To calculate opportunity cost for Fish you divide, max coconuts / max fish • To calculate opportunity cost for Coconuts you…

  7. 1. Basic concepts 2. Pp curve II 3. Cycle through the interactive example of comparative advantage and trade. www.reffonomics.com

  8. Shall we go through questions from modules 1-4?

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