A* summary on specialization and trade

1.1.2 Specialization and trade (Ricardo)
a) Absolute and comparative advantage
Absolute advantage: Where a country can produce more than another country of a
good given the same amount of resources
Comparative advantage: Where a country can produce more of one good at a lower
o/c than another country




~End up increasing global output, allow you to produce above PPF


*output -人地除自己(have CA geh pt dun move)
*input - 自己除人地
*autarky = no trade at all

Assumptions and limitations:
Assumptions Limitations
1. AC remains constant (no EOS/DOS) Increase specialization leads to DOS (=
AC rises)
2. No trade barriers Pay tariff which increase costs OR quota
which doesn’t allow u to sell so much
3. No transport costs In reality very expensive which increase
costs (costs increases as u ship more)
4. No externalities