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1、Interdependence and the Gains from TradeChapter 3Copyright 2001 by Harcourt, Inc.All rights reserved. Requests for permission to make copies of any part of the work should be mailed to:Permissions Department, Harcourt College Publishers, 6277 Sea Harbor Drive, Orlando, Florida 32887-6777.Interdepend
2、ence and TradeConsider your typical day:uYou wake up to an alarm clock made in Korea.uYou pour yourself some orange juice made from oranges grown in Florida.uYou put on some clothes made of cotton grown in Georgia and sewn in factories in Thailand.uYou watch the morning news broadcast from New York
3、on your TV made in Japan.uYou drive to class in a car made of parts manufactured in a half-dozen different countries.and you havent been up for more than two hours yet!Interdependence and TradeRemember, economics is the study of how societies produce and distribute goods in an attempt to satisfy the
4、 wants and needs of its members.How do we satisfy our wants and needs in a global economy?uWe can be economically self- sufficient.uWe can specialize and trade with others, leading to economic interdependence.Interdependence and TradeA general observation . . . Individuals and nations rely on specia
5、lized production and exchange as a way to address problems caused by scarcity.Interdependence and TradeBut, this gives rise to two questions:uWhy is interdependence the norm?uWhat determines production and trade?Why is interdependence the norm?Interdependence occurs because people are better off whe
6、n they specialize and trade with others.What determines the pattern of production and trade?Patterns of production and trade are based upon differences in opportunity costs.uImagine . . .only two goods: potatoes and meatonly two people: a potato farmer and a cattle rancheruWhat should each produce?u
7、Why should they trade?A Parable for the Modern EconomyThe Production Opportunities of the Farmer and the RancherSelf-SufficiencyBy ignoring each other:uEach consumes what they each produce.uThe production possibilities frontier is also the consumption possibilities frontier. Without trade, economic
8、gains are diminished.Production Possibilities FrontiersPotatoes (pounds)Meat (pounds)4212(a) The Farmers ProductionPossibilities Frontier0AProduction Possibilities FrontiersPotatoes (pounds)Meat (pounds)540202.5(b) The Ranchers ProductionPossibilities Frontier0BThe Farmer and the Rancher Specialize
9、and Trade Each would be better off if they specialized in producing the product they are more suited to produce, and then trade with each other.uThe farmer should produce potatoes. uThe rancher should produce meat.The Gains from Trade: A SummaryThe Gains from Trade: A SummaryTrade Expands the Set of
10、 Consumption PossibilitiesPotatoes (pounds)Meat (pounds)4221(a) How Trade Increases the Farmers Consumption0A33A*Farmers consumption without tradeFarmers consumption with tradeTrade Expands the Set of Consumption PossibilitiesPotatoes (pounds)Meat (pounds)52.54020(b) How Trade Increases The Ranchers
11、 Consumption0B213B*Ranchers consumption without tradeRanchers consumption with tradeThe Gains from Trade: A SummaryThe Principle of Comparative AdvantageuWho should produce what?uHow much should be traded for each product?Who can produce potatoes at a lower cost-the farmer or the rancher?Differences
12、 in the costs of production determine the following:Differences in Costs of ProductionuThe number of hours required to produce a unit of output. (for example, one pound of potatoes)uThe opportunity cost of sacrificing one good for another.Two ways to measure differences in costs of production:Absolu
13、te AdvantageuDescribes the productivity of one person, firm, or nation compared to that of another.uThe producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good.Comparative AdvantageuCompares producers of a good according to t
14、heir opportunity cost.uThe producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good.Specialization and TradeuWho has the absolute advantage? The farmer or the rancher?uWho has the comparative advantage? The farmer or the rancher
15、?Absolute AdvantageuThe Rancher needs only 8 hours to produce a pound of potatoes, whereas the Farmer needs 10 hours.uThe Rancher needs only 1 hour to produce a pound of meat, whereas the Farmer needs 20 hours.The Rancher has an absolute advantage in the production of both meat and potatoes.The Oppo
16、rtunity Cost of Meat and PotatoesComparative AdvantageuThe Ranchers opportunity cost of a pound of potatoes is 8 pounds of meat, whereas the Farmers opportunity cost of a pound of potatoes is 1/2 pound of meat.uThe Ranchers opportunity cost of a pound of meat is only 1/8 pound of potatoes, while the Farmers opportunity cost of a pound of meat is 2 pounds of potatoes.Comparative Advan
