Interdependence and the Gains from Trade Chapter 3 Copyright o 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
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
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 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 vet Harcourt, Inc. items and derived items copyright C 2001 by Harcourt, Inc
Harcourt, 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 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 haven’t been up for more than two hours yet!
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 C 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 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
How do we satisfy our wants and needs in a global economy? We can be economically selfo sufficient We can specialize and trade with others leading to economic interdependence. Harcourt, Inc. items and derived items copyright C 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. How do we satisfy our wants and needs in a global economy? We can be economically selfsufficient. 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. Harcourt, Inc. items and derived items copyright C 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. 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 interdependence the norm? What determines production and trade? Harcourt, Inc. items and derived items copyright C 2001 by Harcourt, Inc
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?
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 C 2001 by Harcourt, Inc
Harcourt, Inc. 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
What determines the pattern of production and trade? Patterns of production and trade are based upon differences in opportunity costs. Harcourt, Inc. items and derived items copyright C 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. What determines the pattern of production and trade? Patterns of production and trade are based upon differences in opportunity costs
A Parable for the modern Economy Imagine only two goods: potatoes and meat only two people: a potato farmer and a cattle rancher What should each produce Why should they trade Harcourt, Inc. items and derived items copyright C 2001 by Harcourt, Inc
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 should they trade? A Parable for the Modern Economy
The Production Opportunities of the farmer and the rancher ours Needed to Make 1 lb of: Amount Produced in 40 Hours Meat Potatoes Meat Potatoes Farmer 20 hours/b 10 hours/b 2 bs 4 bs Rancher 1 hours/b 8 hours/b 40bs. 5 bs Harcourt, Inc. items and derived items copyright C 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. 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
