Session 2 Review: Gains from Trade

1
Session 2 Review Gains from Trade

• Bhalla, Gagan
• Jardim, Marcio
• Kostadinov, Eduard
• Mostert, Arnout
• Rodgers, Paul
• Shultz, Paul

2
Free Trade vs Autarky

• Free trade creates
• Larger pie (gains from trade)
• Specialization within economies
• higher standards of living
• But
• Countries have specialization dependency-risk

3
Absolute Comparative Advantage

• All countries (even France) have a comparative
  advantage.
• Difference creates value (Thanks Ingemar)
• CA is based on internal opportunity costs
  measured against free market price

4
Impact of Trade

• Gains from trade
• Re-allocation of resources / Adjustment Costs /
  Winners Losers
• Prices will converge based on each partys
  productivity and cost advantage