The document discusses several key concepts related to international trade including: - Open economies engage in international trade by exporting and importing goods and services. - Countries trade with each other due to differences in costs of production across countries. - Absolute advantage refers to when a country can produce more of a good than other countries using the same amount of resources. - Comparative advantage occurs when a country has a lower opportunity cost of producing a good than other countries.

1. International Trade Chapter #15, 16 EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)

5. Reciprocal Absolute Advantage EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Computers Nutmeg Japan 20 computers from one unit of labour 2kg from one unit of labour Grenada 4 computers from one unit of labour 6kg from one unit of labour Total Output 24 from 2 units of labour 8kg from 2 units of labour

6. Specialization on the Basis of Absolute Advantage EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Country Computers Nutmeg Japan 40 from 2 units of labour 0 Grenanda 0 12kg from 2 units of labour Total Output 40 from 2 units of labour 12kg from 2 units of labour

8. Non-Reciprocal Absolute Advantage EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Nutmeg (kg) Bananas (kg) Grenada 6 from one unit of labour 3 from one unit of labour St Kitts 6 from one unit of labour 10 from one unit of labour Total Output 12 from 2 units of labour 13 from 2 units of labour

9. Opportunity Cost Ratios EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Nutmeg : Bananas Bananas : Nutmeg Grenada = 6 ÷ 3 = 2 : 1 ⇒ 1 kg of banana costs 2 kg of nutmeg = 3 ÷ 6 = 0.5 : 1 ⇒ 1 kg of nutmeg costs 0.5 kg of banana St Kitts = 6 ÷ 10 = 0.6 : 1 ⇒ 1 kg of banana costs 0.6 kg of nutmeg = 10 ÷ 6 = 1.3 : 1 ⇒ 1 kg of nutmeg costs 1.3 kg of banana

10. Complete Specialization on the basis of Comparative Advantage EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Nutmeg (kg) Bananas (kg) Grenada 12 units from 2 units of labour 0 St Kitts 0 20 units from 2 units of labour Total Output 12 units from 2 units of labour 20 units from 2 units of labour

13. Comparative Advantage and the production possibility frontier Computers Cars Country P Country Q 100000 2000 8000 6000 EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)

15. June 2008 (c) The diagram below shows the production possibility frontier (PPF) for two countries, A ( PPFA) and B (PPFB), producing two goods, X and Y. Consider whether either of the c ountries has a comparative advantage or absolute advantage in the production of either of the two goods. Explain your answer. EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)