CHAPTER 2 LABOR PRODUCTIVITY COMPARATIVE ADVANTAGE THE RICARDIAN MODEL
CHAPTER 2 LABOR PRODUCTIVITY COMPARATIVE ADVANTAGE THE RICARDIAN MODEL
Chapter Organization Introduction The Concept of Comparative Advantage aA One-Factor Economy Trade in a one-Factor World a Comparative Advantage with Many Goods a Adding transport Costs and Nontraded Goods Summary Copyright C 2003 Pearson Education, Inc Slide 1-2
Copyright © 2003 Pearson Education, Inc. Slide 1-2 Chapter Organization ▪ Introduction ▪ The Concept of Comparative Advantage ▪ A One-Factor Economy ▪ Trade in a One-Factor World ▪ Comparative Advantage with Many Goods ▪ Adding Transport Costs and Nontraded Goods ▪ Summary
Introduction Countries engage in international trade for two basic reasons They are different from each other in terms of climate, land, capital, labor, and technology They try to achieve scale economies in production The Ricardian model is based on technological differences across countries These technological differences are reflected in differences in the productivity of labor Copyright C 2003 Pearson Education, Inc Slide 1-3
Copyright © 2003 Pearson Education, Inc. Slide 1-3 ▪ Countries engage in international trade for two basic reasons: • They are different from each other in terms of climate, land, capital, labor, and technology. • They try to achieve scale economies in production. ▪ The Ricardian model is based on technological differences across countries. • These technological differences are reflected in differences in the productivity of labor. Introduction
The Concept of Comparative Advantage On valentine's day the U.S. demand for roses is about 10 million roses a Growing roses in the u.s. in the winter is difficult Heated greenhouses should be used The costs for energy, capital, and labor are substantia Resources for the production of roses could be used to produce other goods, say computers Copyright C 2003 Pearson Education, Inc Slide 1-4
Copyright © 2003 Pearson Education, Inc. Slide 1-4 ▪ On Valentine’s Day the U.S. demand for roses is about 10 million roses. ▪ Growing roses in the U.S. in the winter is difficult. • Heated greenhouses should be used. • The costs for energy, capital, and labor are substantial. ▪ Resources for the production of roses could be used to produce other goods, say computers. The Concept of Comparative Advantage
The Concept of Comparative Advantage Opportunity Cost The opportunity cost of roses in terms of computers is the number of computers that could be produced with the same resources as a given number of roses Comparative Advantage A country has a comparative advantage in producing a goods if the opportunity cost of producing that goods in terms of other goods is lower in that country than it is in other countries Copyright C 2003 Pearson Education, Inc Slide 1-5
Copyright © 2003 Pearson Education, Inc. Slide 1-5 ▪ Opportunity Cost • The opportunity cost of roses in terms of computers is the number of computers that could be produced with the same resources as a given number of roses. ▪ Comparative Advantage • A country has a comparative advantage in producing a goods if the opportunity cost of producing that goods in terms of other goods is lower in that country than it is in other countries. The Concept of Comparative Advantage