c3s11
240429M, 201103, 151130 posted
Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART I Introduction
Chapter 3 of 36 Interdependence and the Gains from Trade
Section 11 of 11
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Suppose Tiger Woods can mow his lawn faster than anyone else.
Just because he can mow his lawn fastest, does this mean he should?
To answer we use the concepts of opportunity cost and comparative advantage.
Woods can mow his lawn in 2 hours.
In that same 2 hours, he could film a television commercial for Nike and earn $10,000.
The boy next door Leon can mow Woods' lawn in 4 hours.
In that same 4 hours, Leon could work at McDonald's and earn $30.
Woods has an absolute advantage in mowing lawns because he can do the work with a lower input of time.
Yet because Woods' opportunity cost of mowing the lawn is $10,000 and Leon’s opportunity cost is only $30, Leon has a comparative advantage in lawn mowing.
Rather than mowing his own lawn, Woods should make the Nike commercial and hire Leon to mow the lawn.
As long as Woods pays Leon more than $30 and less than $10,000, both of them are better off.
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Just as individuals can benefit from specialization and trade with one another so can different countries.
Suppose there are just two countries, the United States and Japan, and two goods, food and cars.
The two countries produce cars equally well a U.S. worker can produce 1 car per month and a Japanese worker can also produce 1 car per month.
Because the U.S. has more and better land, it is better at producing food.
A U.S. worker can produce 2 tons of food per month.
A Japanese worker can produce only 1 ton of food per month
The principle of comparative advantage states each good should be produced by the country having the smaller opportunity cost of producing that good.
Japan has a comparative advantage in producing cars
· the opportunity cost of 1 car is 2 tons of food in the U.S.
· the opportunity cost of 1 car is 1 ton of food in Japan
Japan should produce more cars than it wants for its own use and export some cars to the U. S.
The U.S. should produce more food than it wants to consume and export some food to Japan.
Through specialization and trade, both countries can have more food and more cars.
…
International trade can make some individuals worse off, even as it makes the country as a whole better off.
When the U.S. exports food and imports cars, American farmers gain employment and American autoworkers lose employment.
Overall, both local and international trade allows all people and countries to produce and consume more, achieving greater prosperity including through lower prices and higher incomes.
(end of chapter 3 of 36)
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low prices and high incomes
tei kakaku to kō shūnyū
低価格と高収入
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Congratulations! 3/36 = 8% of way to becoming competent economist.
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