Grp02 S01 - Comparative Advantage Q03 N Q07

Seminar 1 Q3) Case A: Trade is possible. Both countries are able to trade for goods they are less efficient in producing compared to one another. UK is able to export cloth to US and import wheat from US. US is able to export wheat to UK and import cloth from UK. Case B: Trade possible. (Assume 4W = 4C) US has absolute advantage over UK on production of both wheat and cloth. US gain 1C. UK gain 2W. Case C: Trade possible. (Assume 4W = 4C) US gain 2C. UK gain 2W. Q7) No, it is not unfair. (Have to think in the view of economists & politicians within the country) This argument is in the best interest of the union and the people they present (local firms & producers). It is because it protects the domestic goods sale within the developed country, avoids competition and allows price to be maintained at a certain level without dropping due to competition. It is not in the best interest of the country as a whole. Consumers will have to pay higher price for domestically produced goods compared to cheaper imports from low wage countries. They will also be given lesser variety of goods to purchase. (Take US & China for example in this case)

Done by: Karin Joyce Xiaolian