Last class we looked at the theory of comparative advantage, which undergirds the logic behind free trade. Today we will use the model of supply and demand to analyze the benefits and costs of free trade and protectionism. You should have read the text chapter identified below in the homework section and watched the related videos. We will start class today with you working cooperatively with a partner to find a solution to the "Problem of the Day" and then there will be a lecture on our next topic. This page contains all the information you need for today's class: homework, the problem of the day, helpful resources (videos, podcasts, etc.) and an explanation of the activities we will do in class. Use the table of contents on the right to help you navigate.
Read Mankiw (Chapter 9) and watch the following videos.
Problem of the Day: You will work cooperatively with your partner to construct a response to the following prompt.
American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. Assume each country has 100 million workers.
Graph the production possibilities frontier of the American and Japanese economies.
For the United States, what is the opportunity cost of a car? Of grain?
For Japan, what is the opportunity cost of a car? Of grain?
Which country has the absolute advantage in the production of cars? Grain?
Which country has the comparative advantage in the production of cars? Grain?
Assume that originally there is no trade between Japan and the U.S. Identify an example in which trade makes both countries better off.
Lecture
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