Eddy+House

=__//**Trading benefits everybody**//__=

Does trade really benefit other people? How so?

It may seem that trading does not make people better off. Partially, it is correct when you are involved in business. It may be hard to understand, but trading does make people better off. According to Paul Krugman, Professor of Economics at MIT, Cambridge, he stated that “I believe in the Principle of Comparative Advantage. Also, I believe in Free Trade.” The concept of comparative advantage was first introduced in the year 1817. It was David Ricardo who found that comparative advantage exists when a country has a “margin of superiority” in the production of a good or service. Individuals tend to rely on specialized production and exchange. When we learn this topic, we have to think about two questions. Why is interdependence the norm? What determines production and trade? The reason why interdependence occurs because people are better off when they specialize and trade with others.

=__//**Example**//__=

Let's say I suddenly have interest in farming and want to create my own farm in Texas. I live in a big cabin my large farming land. I'm excellent in making potatoes, maybe I was just born to raise cows but for some reason my cows won't grow big. Anyways, I can produce 16oz potatoes in 8 hours, amazing right? Sadly I can produce 4oz of meat in 10 hours. I may be happy with my living but I'm a huge fan of steak. I want to buy meat but for some reason all the meat prices started thriving through the air so I'm just munching on my mash potatoes all the time. Instead of selling my potatoes and buying meat, I can trade with someone that specializes in meat that demands for potatoes. I search around Texas and find a rancher that loves potatoes from the heart. I have a small conversation with him, talking about how life is getting boring and how much we each produce. He said that he produces 24oz of meat in 10 hours. However he was not satisfied with the fact that he could only produce 12oz of potatoes in 8 hours. Boy, he was better than I was, he produced more potatoes and meat than myself. Well I still wanted to trade with him, so I said

"Hey man you now want, you suck at producing potatoes man, I think you better produce meat only. If you give about 30oz of meat I'll give you 10oz of potato in return how about that. I mean you want to eat mashed potatoes with sweet gravy don't you?"

Then he might say

"Yeah man that sounds cool, but what about you man, how about you man you cool with that?"

Then I'll say

"Yeah it's sure man look at my calculations."


 * Me** Farmer


 * Meat Potatoes** Meat Potatoes

 Without Trade __Production and Consumption __ **4oz 16oz** 12oz 24oz

 With trade __//Production//__ **0oz 32oz** 18oz 12oz __//Trade//__ Gets **5oz Gives 15oz** Gives 5oz Gets 15oz __//Consumption // __ **5oz 17oz** 13oz 27oz

//Gain From Trade // __//Increase in Consumption//__ **+1 oz +1 oz** +1oz +3oz

Well even though the farmer produced better than me, we still benefited both from trading meat and potatoes together. When people trade with each other the following three terms (Absolute advantage, Opportunity Cost, Comparative Advantage) are important to understand.

According to Mankiw the Definition of these three words states

Absolute Advantage: The ability to produce a good using fewer inputs than another producer Opportunity Cost: Whatever must be given up to obtain some item Comparative Advantage: The ability to produce a good at a lower opportunity cost than another producer.

Note that the gains from specialization and trade are based not on absolute advantage but on comparative advantage.

=//**NBA**//= league You might even think why countries trade with each other. Why would the United States trade with other countries if they are a super power country. Why would the Miami Heat trade Shawn Marion and Marcus Banks for Jermaine O’Neal and Jamario Moon from the Toronto Raptors? The reason is because Trade can make everyone better off. This year the Miami Heat was strong defensively, but needed more veterans and skillful forwards. By gaining Jeramine O’Neal and Jamario Moon not only helped the Heat to create a more balanced and stronger team, but also create more money to sign players for the next season in 2009~2010. The Toronto Raptors needed a swift player that can change the game tempo. Shawn Marion is a veteran player that played in the for over 10 years. He is a threat offensively, and is excellent on defense. With the injury of Jermaine O’Neal, the Raptors needed a replacement for his position. After obtaining Marion and Banks, the Raptors finished off with a better record when they had O’Neal. Therefore, trade makes everyone better off.

Shawn Marion / Marcus Banks

For

Jermaine O'Neal / Jamario Moon

=__//**KIS STUDENT LIFE**//__=

Ever Since KIS told the students to purchase MacBooks. All sorts of weird activities and projects were created. Despite SAT’s and school work, every student is assigned with a major project per month. It’s just the way KIS is so all the students must bear with it. When students try to cooperate with each other, some may be better at writing and some may be better at orally speaking and creating ideas. Every human being is good at specializes in different things.

Let’s imagine that your history teacher assigns a group projects that is 10% of your semester grade. The direction says that the group contains individual or 2 people needs to teach history through music. Since 1945, the importance and ubiquity of media in the United States grew exponentially. Music is no exception. In many ways, music reflected society and in others, society reflected music. There is much to learn about he people, events, politics and social issues of the last half of the 20th century by studying its music. In addition, the group must write a 3 page report on how the music project was interesting and influencing. I became partners with Dongmin. We are both talented in some parts of music, Dongmin can play guitar and piano well and I can play saxophone and hear notes and melodies with my hearing abilities. I can create a music video in 3 hours and Dongmin can create a music video in 4 hours. In addition, I can write the report 12 hours and Dongmin will take 8 hours. If we look at how much time is consumed when making the project, it would be stupid to write a whole report by myself, it's going to take me 12 FREAKING HOURS. So I have to co-operative with Dongmin, if he can write the paper faster than me than I should make do most of the paper work and a bit less on making the music video. The gains from specialization and trade are based not on absolute advantage but on comparative advantage. Even though Dongmin may look like a super genius because I lack in speed, he and I can both benefit from saving our time. Using the idea of opportunity cost and comparative advantage, I will work mainly on the paper and Dongmin should mostly work on the music project. Then we switch jobs when we are both 75 % done, in that way time consuming will be much shorter for the both of us.

Summary

Economy in daily life always occur. Although we have not interacted with the entire world, we are already learning and facing some important principles of microeconomics. It is always important to know that the gains from specialization and trade are based not on absolute advantage but on comparative advantage. When each person specializes in producing the good for which he or she has a comparative advantage, total production in the ecnomy rises. This increase in the size of the ecnomic pie can be used to make everyone better off. So when you enter the real world and become internationally involved with other coutnires. Think of the following terms (Absolute advantage, Comparative Advantage, and Oppurtunity cost.)