Chapter+3+JK+&+JJ

chapter 3 Benefits of Trade

basic lesson:

-Trade is desirable because they allow people to specialize and produce more goods, ultimately allowing everyone to enjoy greater quantity and variety of goods and services. -Two different measurements to compare the ability of two people producing a good: -absolute advantage: being able produce more outputs than other producers using the same amount of inputs -comparative advantage: being able to produce goods and services with lower opportunity costs than other producers can -The gains from trade is based on comparative advantage, not absolute advantage. -Trade makes everyone better off, by allowing people to specialize in which they have a comparative advantage -Gains, if people do not trade, lie on the production possibilities frontier, but trade allows gains to exceed the production possibilities frontier. -The principle of comparative advantage applies to countries as well as to people.

media type="youtube" key="-1TDU5lgCvI" height="344"

media type="youtube" key="AMM2OSbu4Lc" height="344"

chapter 3 key concepts absolute advantage: being able produce more outputs than other producers using the same amount of inputs opportunity cost: What was given up in order to gain something else comparative advantage: being able to produce goods and services with lower opportunity costs than other producers can imports: Goods produced abroad that enters the domestic market exports: Goods produced domestically that enters the world market

Sources: http://www.econ.yale.edu/news/srinivasan/images/lec-int-trade2.jpg

Back to home!