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Learning Objectives
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Now · 1. Comparative Advantage
Learning Objectives
- Understand comparative advantage and gains from trade
- Analyze the effects of tariffs, quotas, and trade barriers
- Evaluate trade policy debates
- Week 9: Public policy concepts
- Understanding of supply and demand
1. Comparative Advantage
Countries gain from specializing in what they produce relatively more efficiently.
Absolute Advantage: Produce more with same resources. Comparative Advantage: Lower opportunity cost.
2. Trade Policy Instruments
Tariff: Tax on imports. Raises domestic price, reduces quantity imported. Quota: Limit on quantity imported. Subsidy: Payment to domestic producers.
3. Arguments for Protection
Infant industry, national security, strategic trade policy, job protection.
Q1: Country A produces 10 cars or 5 computers. B produces 6 cars or 4 computers. Who has comparative advantage in what?A: opportunity cost of 1 car = 0.5 computers. B: 1 car = 0.67 computers. A has comparative advantage in cars. B in computers. Q2: Who benefits and loses from a tariff?Domestic producers gain (higher price, more output). Government gains tariff revenue. Consumers lose (higher prices). Net effect: deadweight loss. Join Discord PreviousPublic Policy & RegulationNextBehavioral Economics