U2: Interdependence and the Gains from Trade

In the modern global economy, why do people specialize in trade?

because they get something in return

What is trade motivated by and who benefits?

Trade is motivated by self interest, but it still can make everyone involved better off (not necessarily equally better off, but still mutual benefit)

Without trade, what does the PP curve show?

shows consumption possibilities (each person can consume exactly what they produce)

What is the point of trade?

to get both parties beyond their self-sufficient PP curves

What is absolute advantage?

Comparing producers according level of productivity (who can produce more overall - in “absolute” terms)

What is comparative advantage?

Comparing producers’ OC for each item

People should trade as long as..

These two should trade as long as the price of trade is better than their OC (acceptable range of prices for a particular product = any number in between the respective OC’s for that specific product)Wh

what is trade based on?

comparative advantage

do people need an AA to have a CA?

A person doesn’t need an AA to have a CA

look over the comparative advantage chart