Microeconomics Lesson 1: Comparative Advantage & International Trade | Microeconomics | Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

International Trade
A theory of comparative advantage: A country has a comparative advantage in a good
If it produces the good at lower opportunity cost than other countries. Time to produce Number of meat Number of Time to produce 1 unit of produce within 8 potatoes produce 1 unit of meat potatoes hours within 8 hours Hà 60 minutes 15 minutes 8 kg 32 kg Hiếu 20 minutes 10 minutes 24 kg 48 kg Opportunity cost:
The case of Ha: (within 8 hours): The level of exchange or oppourtunity cost:
8 meat = 32 potatoes 1 meat= 4 potatoes that implies 1 potatoe = ¼ meat
The case of Hieu: (within 8 hours):
24 meat = 48 potatoes 1 meat = 2 potatoes that implies 1potatoe= ½ meat
One situation occur: one has a comparative advantage in one good, another will have a comparative
advantage in another good. (Although Hieu has an adsolute advantage in producing both goods at a lower input cost)
Hieu should employ most of their resources to produce the meat (the good that Hieu has a
comparative advantage) and then trade meat with Potatoes produced by Ha.
Finally, transactions are still possible. The case of Hieu:
Winthin 8 hours, 24 units of meat = 48 units of potatoes--> 1unit of meat = 2 unit of potatos-->1 unit of potatoes = 1/2 unit of meat. Opportunity of 1 ounce of meat
Opportunity of 1 ounce of potatoes Hà 4 potatoes ¼ meat Hiếu 2 potatoes ½ meat
Ha has a comparative advantage in producing the potatoe.
Haieu has a comparative advantage in producing the meat.
Key point: one possible outcome of theory of comparative afvantage: one producer just has a
comparative advantage in producing one type of goods--> a better theory to explain the interational
trade. The producer should specialize in producing the goods that they have a comparative advantage.
Explain international trade between developing and developed nations, e.g. U.S and Vietnam.
In the case of the absolute advantage, any outcome can be possible. One produce can has an absolute
advanttage in producing two goods, one good, or nothing.--> This theory fails to explain the case one
produce has an absolute advanttage in producing two goods because this producer can produce all
goods at the lower costs, thus he/she dont need to make a transaction.
In one year, U.S and Vietnam are able to procduce goods A and good B, and the information is as follows Good A Good B U.S 200 150 Vietnam 100 50
Which country does has a comparative/absolute advantage in producing good A?
Which country does has a comparative/absolute advantage in producing good B? Solution:
Absolute advantage: U.S has an absolute advantage in producing both goods because the
U.S has a higher level of producitity. Comparative advantage:
+) U.S : 200A=150B-->1A=3/4B --> B=4/3A
+) VN: 100A = 50B---> 1A=1/2B--> B=2A
-->U.S has a comparative advantage in producing the good B and Vietnam has a
comparative advantage in producing the good A.
Ha can edit 2 pages in one minute and he can type 80 words in one minute. Nam can edit 1 page
in one minute and she can type 100 words in one minute. Ha has an absolute advantage and a
comparative advantage in editing, Nam has an absolute advantage and a comparative advantage in typing?
Ha: 2page=80 word (MUST at the same one minute)--> 1 page= 40word --> 1word=1/40 page Nam: 1page=100 word-->
, Nam has an absolute advantage and a comparative advantage in typing Solution:
Bình: 1 câu = 50 từ hoặc 1 từ =1/50 câu
An: 3 câu = 60 từ 1 câu =20 từ hoặc 1 từ =1/20 câu