Roch. has abs. advantage at making cameras too!
Who's More Efficient At Making Each Good?
Price = what is traded off to do something
-Who incurs smaller tradeoff at making each? What is sacrificed?
Rochester | Cornell | |
Cameras | 5 cameras “cost” 10 wine à 1 cam = 2 wines Pc = 2 wines | 4 cameras cost 3 wines à 1 cam cost ¾ of wine Pc = ¾ wine |
Wine | 10 wines “cost” 5 cameras 1 wine costs 2 cam à Pw = ½ cam | à Pw = 4/3 camera |
--> Compare tradeoffs: Rochester students better at making wine; lowest opportunity cost per bottle of wine
Rochester has a "comparative advantage" in making wine over Cornell
-Ability to produce something w/ less sacrifice
-No producer can have comparative advantage at producing everything
Notice Cornell more efficient not because they can make more but because they can make it cheaper!
--> relative efficiency
Rochester | Cornell | |
Initial | 10 wines 0 cameras | 0 wines 4 cameras |
Trade | 3 wines to Cornell | 3 cameras to Roch |
Final | 7 wines 3 cameras | 3 wines 1 camera |
Society is richer! Trade leads to economic sustainability.
Get more without using more resources; more output for same input
How Able to Know If Exchange (trade) Makes Sense?
The cost is cheaper
-Willing to agree on price
-Sell for more than costs to make it and the consumer buys for cheaper than it costs him to make it
(Roch. realizes $$ to build camera, buys cheaper from Cornell; Cornell sells at higher price than it costs them to make it)
Relatively better at something because opportunity costs matter
Rochester exported/imported, consider exchange rate of wine & cameras
*Pay for imports w/ your exports*
-Better off if specialize & engage in global community
-Self sufficiency is the road to poverty
Everyone worries about population; Fear that China will produce everything more cheaply
-->Imagine if it actually was reduced
1) impossible for country to be good at everything
2) function of relativity
-what matters is not different in prices across countries, but the relative prices within a country
-make whatever you're better at
-policy that discourages exchange causes problems
3) Policy that restricts trade makes people poorer
-fear: poor countries take all the jobs & everyone becomes poor
Free movement of goods makes us richer
4) Service jobs= more pleasant, pay more, safer..
*Pay for imports w/ your exports*
-Better off if specialize & engage in global community
-Self sufficiency is the road to poverty
Everyone worries about population; Fear that China will produce everything more cheaply
-->Imagine if it actually was reduced
1) impossible for country to be good at everything
2) function of relativity
-what matters is not different in prices across countries, but the relative prices within a country
-make whatever you're better at
-policy that discourages exchange causes problems
3) Policy that restricts trade makes people poorer
-fear: poor countries take all the jobs & everyone becomes poor
Free movement of goods makes us richer
4) Service jobs= more pleasant, pay more, safer..
