1、Interdependence and the Gains from Trade,Chapter 3,Copyright 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.,Harcou
2、rt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Interdependence and Trade,Consider your typical day: You wake up to an alarm clock made in Korea. You pour yourself some orange juice made from oranges grown in Florida. You put on some clothes made of cotton grown in Georgia and sewn
3、 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!,Harcourt, Inc. items and derived items copyright 2001
4、 by Harcourt, Inc.,Interdependence and 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.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,How do we satisfy our wants and needs in a
5、global economy?,We can be economically self-sufficient. We can specialize and trade with others, leading to economic interdependence.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Interdependence and Trade,A general observation . . . Individuals and nations rely on speciali
6、zed production and exchange as a way to address problems caused by scarcity.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Interdependence and Trade,But, this gives rise to two questions: Why is interdependence the norm? What determines production and trade?,Harcourt, Inc.
7、items and derived items copyright 2001 by Harcourt, Inc.,Why is interdependence the norm?,Interdependence occurs because people are better off when they specialize and trade with others.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,What determines the pattern of production
8、 and trade?,Patterns of production and trade are based upon differences in opportunity costs.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Imagine . . . only two goods: potatoes and meat only two people: a potato farmer and a cattle rancher What should each produce? Why sh
9、ould they trade?,A Parable for the Modern Economy,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,The Production Opportunities of the Farmer and the Rancher,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Self-Sufficiency,By ignoring each other: Each c
10、onsumes what they each produce. The production possibilities frontier is also the consumption possibilities frontier. Without trade, economic gains are diminished.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Production Possibilities Frontiers,Potatoes (pounds),Meat (pound
11、s),4,2,(a) The Farmers ProductionPossibilities Frontier,0,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Production Possibilities Frontiers,Potatoes (pounds),Meat (pounds),5,40,(b) The Ranchers ProductionPossibilities Frontier,0,Harcourt, Inc. items and derived items copyrig
12、ht 2001 by Harcourt, Inc.,The Farmer and the Rancher Specialize 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.,The farmer should produce potatoes. The rancher should produce meat.,Harcourt, Inc. items a
13、nd derived items copyright 2001 by Harcourt, Inc.,The Gains from Trade: A Summary,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,The Gains from Trade: A Summary,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Trade Expands the Set of Consumption Possi
14、bilities,Potatoes (pounds),Meat (pounds),4,2,2,1,(a) How Trade Increases the Farmers Consumption,0,A,3,3,A*,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Trade Expands the Set of Consumption Possibilities,Potatoes (pounds),Meat (pounds),5,2.5,40,20,(b) How Trade Increases T
15、he Ranchers Consumption,0,B,21,3,B*,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,The Gains from Trade: A Summary,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,The Principle of Comparative Advantage,Who should produce what? How much should be trade
16、d for each product?,Who can produce potatoes at a lower cost-the farmer or the rancher?,Differences in the costs of production determine the following:,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Differences in Costs of Production,The number of hours required to produce a
17、 unit of output. (for example, one pound of potatoes) The opportunity cost of sacrificing one good for another.,Two ways to measure differences in costs of production:,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Absolute Advantage,Describes the productivity of one person,
18、 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.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Comparative Advantage,Compares producers of a
19、good according to their opportunity cost. The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Specialization and Trade,Who has the absolute advant
20、age? The farmer or the rancher? Who has the comparative advantage? The farmer or the rancher?,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Absolute Advantage,The Rancher needs only 8 hours to produce a pound of potatoes, whereas the Farmer needs 10 hours. The Rancher needs
21、 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.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,The Opportunity Cost of Meat and Potatoes,Harcourt, Inc. items and de
22、rived items copyright 2001 by Harcourt, Inc.,Comparative Advantage,The 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. The Ranchers opportunity cost of a pound of meat is only 1/8 pound of potatoe
23、s, while the Farmers opportunity cost of a pound of meat is 2 pounds of potatoes.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Comparative Advantage,so, the Rancher has a comparative advantage in the production of meat but the Farmer has a comparative advantage in the prod
24、uction of potatoes.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,The Principle of Comparative Advantage,Comparative advantage and differences in opportunity costs are the basis for specialized production and trade. Whenever potential trading parties have differences in opp
25、ortunity costs, they can each benefit from trade.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Benefits of Trade,Trade can benefit everyone in a society because it allows people to specialize in activities in which they have a comparative advantage.,Harcourt, Inc. items an
26、d derived items copyright 2001 by Harcourt, Inc.,Adam Smith and Trade,In his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith performed a detailed analysis of trade and economic interdependence, which economists still adhere to today.,Harcourt, Inc. items and deri
27、ved items copyright 2001 by Harcourt, Inc.,David Ricardo and Trade,In his 1816 book Principles of Political Economy and Taxation, David Ricardo developed the principle of comparative advantage as we know it today.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Should Tiger W
28、oods Mow His Own Lawn?,?,?,?,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Summary,Interdependence and trade allow people to enjoy a greater quantity and variety of goods and services.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Summary,The perso
29、n who can produce a good with a smaller quantity of inputs has an absolute advantage. The person with a smaller opportunity cost has a comparative advantage.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Summary,The gains from trade are based on comparative advantage, not a
30、bsolute advantage. Comparative advantage applies to countries as well as to people.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Production Possibilities Frontiers,Harcourt, Inc. items and derived item
31、s copyright 2001 by Harcourt, Inc.,Production Possibilities Frontiers,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Trade Expands the Set of Consumption Possibilities,Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.,Trade Expands the Set of Consumption Possibilities,
