So far, much of this book has focused on the U.S. economy, but clearly American consumers and American firms buy and sell in the global economy. Consumers enjoy buying products made in other nations, and firms enjoy selling to foreign customers. This chapter explores the concept of comparative advantage and mutually beneficial trade and how trade is facilitated by the foreign currency markets.
After completing this chapter, the student should be able to:
1. Use the production possibilities model to show a nation’s capacity to produce two goods and how the production possibilities curve (PPC) can be used to determine comparative advantage in production.
2. Understand how two nations benefit from ...