Comparative and Absolute Advantage
In China
$8/4 units per hour = $2 per unit
In the USA
$30/20 units per hour = $1.50 per unit
Wages/ Marginal produce of labor (MPL-how more stuff you can get if you work one more hour). This shows your absolute advantage in production. But you need to calculate comparative advatange using wages and production from other sectors.
Do trade surpluses create jobs?
Example: Agriculture sector- Trend says no. Running a trade deficit does not create jobs and nor does it destroy them.
Why don't trade deficits destroy jobs?
-You pay for imports with your exports. When you specialize, you get richer (you use fewer resources to make more goods. With more income, you consume more and this create jobs. On net, that's why you should see employment increase.
When you get a free car as a gift from Korea, American living standards would increase the someway as if American manufacturers could produce cheaper cars.
US Current Account Balance: What Americans sell compared to what Americans buy
US Capital Account Balance: Look at American Assets (Treasuries, bonds)
Rizzo
-Daniel Gaona
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