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1、Chapter 3 Interdependence and the Gains from Trade,Principles of Economics Third edition N. Gregory Mankiw,Consider your typical day: You wake up to an alarm clock made in Korea. You pour yourself orange juice made from Florida oranges and coffee from beans grown in Brazil. You put on some clothes m
2、ade of cotton grown in Georgia and sewn in factories in Thailand. You watch the morning news broadcast from New York on your TV made in Japan. You 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!,Interdependen
3、ce and the Gains from Trade,Remember, economics is the study of how societies produce and distribute goods in an attempt to satisfy the wants and needs of its members. How do we satisfy our wants and needs in a global economy? We can be economically self-sufficient. We can specialize and trade with
4、others, leading to economic interdependence.,Interdependence and the Gains from Trade,Individuals and nations rely on specialized production and exchange as a way to address problems caused by scarcity. But this gives rise to two questions: Why is interdependence the norm? What determines production
5、 and trade?,Interdependence and the Gains from Trade,Why is interdependence the norm?Interdependence occurs because people are better off when they specialize and trade with others. What determines the pattern of production and trade? Patterns of production and trade are based upon differences in op
6、portunity costs.,A PARABLE FOR THE MODERN ECONOMY,Imagine . . . only two goods: potatoes and meat What should each produce? Why should they trade?,Table 1 The Production Opportunities of the Farmer and Rancher,1 ounce(0z)盎司 =28.35 grams 克 1 quarter夸特 = 12.7 kilograms千克，公斤 16 ounces = 1 pound (lb) =0
7、.454 kilogram (kg) 10 litres 升 = 2.2 gallons (2.63US gallons 美国加仑),Copyright 2004 South-Western,Self-Sufficiency By ignoring each other: Each consumes what they each produce. The production possibilities frontier is also the consumption possibilities frontier. Without trade, economic gains are dimin
8、ished.,Production Possibilities,Figure 1 The Production Possibilities Curve,Potatoes (ounces),0,Meat (ounces),(a) The Farmer,s Production Possibilities Frontier,Copyright2003 Southwestern/Thomson Learning,Figure 1 The Production Possibilities Curve,Copyright2003 Southwestern/Thomson Learning,Potatoe
9、s (ounces),0,Meat (ounces),(b) The Rancher,s Production Possibilities Frontier,The Farmer and the Rancher Specialize and TradeEach would be better off if they specialized in producing the product they are more suited to produce, and then trade with each other. The farmer should produce potatoes. The
10、 rancher should produce meat.,Specialization and Trade,Table 3-2. The Gains from Trade: A Summary,Figure 2 How Trade Expands the Set of Consumption Opportunities,Copyright2003 Southwestern/Thomson Learning,Potatoes (ounces),0,Meat (ounces),(a) The Farmer,s Production and Consumption,Figure 2 How Tra
11、de Expands the Set of Consumption Opportunities,Copyright 2004 South-Western,Potatoes (ounces),0,Meat (ounces),(b) The Rancher,s Production and Consumption,Copyright 2004 South-Western,Table 3-2. The Gains from Trade: A Summary,THE PRINCIPLE OF COMPARATIVE ADVANTAGE,Differences in the costs of produ
12、ction determine the following: Who should produce what? How much should be traded for each product?Who can produce potatoes at a lower cost-the farmer or the rancher?,THE PRINCIPLE OF COMPARATIVE ADVANTAGE,Differences in Costs of Production Two ways to measure differences in costs of production: The
13、 number of hours required to produce a unit of output (for example, one pound of potatoes). The opportunity cost of sacrificing one good for another.,Absolute Advantage,The comparison among producers of a good according to their productivityabsolute advantage Describes the productivity of one person
14、, firm, or nation compared to that of another. The producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good.,Absolute Advantage,The Rancher needs only 10 minutes to produce an ounce of potatoes, whereas the Farmer needs 15 min
15、utes. The Rancher needs only 20 minutes to produce an ounce of meat, whereas the Farmer needs 60 minutes. The Rancher has an absolute advantage in the production of both meat and potatoes.,Opportunity Cost and Comparative Advantage,Compares producers of a good according to their opportunity cost. Wh
16、atever must be given up to obtain some item. The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good.,Comparative Advantage and Trade,Who has the absolute advantage? The farmer or the rancher? Who has the comparative advantage? The farmer or the rancher?,Table 3-3. The Opportunity Cost of Meat and Potatoes,Comparative Advantage and Trade,
