EC 200-B01



  • Arbitrage: buy low, sell high
  • Does Int’l trade cost US jobs?
  • Theory of Comparative Advantage: specialize in what you do well, trade for what you don’t
  • A B
    X 1 2
    Y 2 8
  • Suppose B takes 8 resources from Y to X: -1y – 4X
  • Suppose A takes 4 resources from X to Y: 2y – 4X
  • Theory basically focuses on global input, not the nation-state

  • US production workers squeezed out of market
  • compensation principle: identify market losers and compensate them (Trade Adjustment Act)
  • all follows from Adam Smith
  • export products are typically those sourced from abundant resources
  • Sources of US Comparative Adv.

  • brain power: tech, innovation
  • natural resources: agribusiness
  • institutions laws & customs
  • diversity
  • product life cycle
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