Interdependence and the Gains from Trade Chapter 3
Interdependence and the Gains from Trade Chapter 3
Interdependence and trade Consider your typical da You wake up to a alarm clock made in Wenzhou You put on some clothes made of cotton grown in Xinjiang and sewn in factories in Fujian province You drink a cup of milk made in Nanchang You go to classroom by bicycle made in shanghai You read some books published in Beijing You browse some news on internet using your PC made in Suzhou … and many other things And all the things mentioned above can be imported from a dozen of countries
Interdependence and Trade • Consider your typical day: – You wake up to a alarm clock made in Wenzhou – You put on some clothes made of cotton grown in Xinjiang and sewn in factories in Fujian Province. – You drink a cup of milk made in Nanchang – You go to classroom by bicycle made in Shanghai – You read some books published in Beijing – You browse some news on internet using your PC made in Suzhou – …… and many other things – And all the things mentioned above can be imported from a dozen of countries
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
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
How do we satisfy our wants and needs in a global economy? o We can be economically self-sufficient We can specialize and trade with others leading to economic interdependence
How do we satisfy our wants and needs in a global economy? • We can be economically self-sufficient. • We can specialize and trade with others , leading to economic interdependence
Interdependence and trade A general observation Individuals and nations rely on specialized production and exchange as a way to address problems caused by scarcity
Interdependence and Trade • A general observation… – Individuals and nations rely on specialized production and exchange as a way to address problems caused by scarcity
Interdependence and trade But, this gives rise to two questions Why is the interdependence the e norm ? What determine production and trade?
Interdependence and Trade • But, this gives rise to two questions: – Why is the interdependence the norm? – What determine production and trade?
Why is the interdependence the norm Interdependence occurs because people are better off when they specialize and trade with others
Why is the 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 the differences in opportunity costs
What determines the pattern of production and trade? • Patterns of production and trade are based upon the differences in opportunity costs
A Parable for Modern Economy ° Imagine Only two goods: potatoes and meat Only two people: a farmer and a rancher What should each produce? Why should they trade?
A Parable for Modern Economy • Imagine… – Only two goods: potatoes and meat – Only two people: a farmer and a rancher • What should each produce? • Why should they trade?
The Production Opportunities of the farmer and the rancher Hours Needed to Make 1 lb of Amount Produced in 40 Hours Meat Potatoes Meat Potatoes Farmer 20 hour /b 10 hours b 2 lbs. 4 Rancher 1 hours/b 8hours/b. 40 bs 5 lbs
The Production Opportunities of the Farmer and the Rancher Hours Needed to Make 1 lb. of: Amount Produced in 40 Hours Meat Potatoes Meat Potatoes Farmer 20 hours/lb 10 hours/lb 2 lbs. 4 lbs. Rancher 1 hours/lb 8 hours/lb. 40 lbs. 5 lbs