International Trade
Chapter 18
Labour-intensive goods: digital
cameras, DVD players (skilled labour
required)
Capital-intensive goods: automobiles,
agricultural equipment, machinery &
chemicals. (industrially advanced ecos
w/ large amts of capital)
Comparative Advantage
Assumptions:
• Two Isolated Nations
The Economic Basis for • SA & Namibia hv equal labour force
Trade
International trade enables nations 2:
• Specialize their production;
• Enhance their resource
productivity;
• Acquire more g/s.
Absolute advantage: ability of party
(individual, firm / country) 2 produce
g/s, using abundance of available resc
that other countries do not have, e.g.
SA has absolute advantage over most
other countries in production of gold.
• goods normally of nature that only
few others can provide them 2 rest
of world.
Why do nations trade?
1. Uneven distribution of natural,
human & capital rescs among
nations;
2. Diff technologies / combos of
rescs = needed 4 efficient
production;
3. Products = differentiated as 2
quality & other non-price
attributes.
Land-intensive good: product
requiring relatively large amt of land 2
be produced. (maize, wheat, wool,
meat)
, Comparative advantage: lower
relative opportunity cost than that of
another producer / country.
Gains from Trade
3 realities relating 2 PPC: Trading possibilities line: line that
1. Constant cost: curves drawn as shows diff combinations of two
straight lines (contrast 2 bowed products that an eco = 2 to obtain
outward PPC) – replaces law of (consume) when it specializes in
increasing opportunity cost w/ production of 1 product & trades
assumption of constant cost. (exports) it 2 obtain other product.
2. Different cost: PPC of SA &
Namibia reflect diff resc mixes &
differing lvls of technological
progress. Differing slopes of 2
curves tell tht opp cost of
producing wheat & meat differ
btw 2 nations.
3. SA absolute advantage in both: if
use entire equal size labour force
2 produce meat/wheat, SA can
produce more of both (output per
worker – labour productivity- in
SA higher).
Opportunity–cost ratio: equivalency
showing # of units of 2 products that
can be produced w/ same rescs; opp
cost of 1 corn & 3 olives using same
resources shows that same rescs
required 2 produce 3 units of olives
must be shifted 2 corn production 2
produce 1 unit of corn.
Terms of Trade
• 1M ≡ 1W in SA (sign means
‘equivalent 2”)
• 1W ≡ 2C in Namibia
Rate @ which units of 1 product can be
exchanged 4 units of another product;
price of g/s; amount of 1 g/s that must
be given up 2 obtain 1 unit of another
g/s.
Self-Sufficiency Output Mix
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller amywallace. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $4.52. You're not tied to anything after your purchase.