Interdependence and Gains from Trade

If there is __ _____, their ______ _______ ______ are also their _____ ______ _____

If there is no trade, their production possibilities frontiers are also their consumption possibilities frontiers

• For the buyer: The trade price must be ___ than their internal cost (so they ___).

• For the seller: The trade price must be ____ than their internal cost (so they ___).

• Meat: ___ Cost (__) < Trade Price (3) < ___(__)

• Potatoes: ___ Cost (___) < Trade Price (1/3) < ____s Cost (___)

• For the buyer: The trade price must be smaller than their internal cost (so they save).

• For the seller: The trade price must be larger than their internal cost (so they profit).

• Meat: Ruby’s Cost (2) < Trade Price (3) < Frank’s Cost (4)

• Potatoes: Frank’s Cost (1/4) < Trade Price (1/3) < Ruby’s Cost (1/2)