1、Interdependence and the Gains from TradeChapter 3Copyright 2001 by Harcourt, Inc.All rights reserved. Requests for permission to make copies of any part of thework should be mailed to:Permissions Department, Harcourt College Publishers,6277 Sea Harbor Drive, Orlando, Florida 32887-6777.Interdependen

2、ce 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 yo

3、ur 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 by Harcourt, Inc.Interdependence and TradeRemember, economics is the study of how s

4、ocieties 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 self-sufficient.We can specialize and trade with others, leading to economic interdependence.Interdependence and TradeA g

5、eneral observation . . .Individuals and nations rely on specialized production and exchange as a way to address problems caused by scarcity.Why is interdependence the norm?Interdependence occurs because people are better off when they specialize and trade with others.Imagine . . .only two goods: pot

6、atoes and meatonly two people: a potato farmer and a cattle rancherA Parable for the Modern EconomyThe Production Opportunities of the Farmer and the RancherHarcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.Production Possibilities FrontiersPotatoes (ounces)Meat (ounces)328416(a

7、) The Farmers Production Possibilities Frontier0AIf there is no trade,the farmer chooses this production and consumptionProduction Possibilities FrontiersPotatoes (ounces)Meat (ounces)481224(b) The Ranchers Production Possibilities Frontier0BIf there is no trade,the rancher chooses this production a

8、nd consumption24The Gains from Trade: A SummaryHarcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.The Gains from Trade: A SummaryHarcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.How Trade Expands the Set of Consumption OpportunitiesCopyright2003 Southwestern

9、/Thomson LearningPotatoes (ounces)416517832AA*0Meat (ounces)(a) The Farmers Production and ConsumptionFarmers production and consumption without tradeFarmers consumption with tradeFarmers production with tradeHarcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.How Trade Expands th

10、e Set of Consumption OpportunitiesPotatoes (ounces)12241327B0Meat (ounces)(b) The Ranchers Production and Consumption48241218B*Ranchers consumption with tradeRanchers production with tradeRanchers production and consumption without tradeHarcourt, Inc. items and derived items copyright 2001 by Harcou

11、rt, Inc.The Gains from Trade: A SummaryHarcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.Differences in Costs of ProductionThe number of hours required to produce a unit of output. (for example, one pound of potatoes)The opportunity cost of sacrificing one good for another.Two w

12、ays to measure differences in costs of production:Absolute AdvantageDescribes the productivity of one person, 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.Absolute Ad

13、vantageThe Rancher needs only 10 minutes to produce a pound of potatoes, whereas the Farmer needs 15 minutes.The Rancher needs only 20 minutes to produce a pound of meat, whereas the Farmer needs 60 minutes.The Rancher has an absolute advantage in the production of both meat and potatoes.Harcourt, I

14、nc. items and derived items copyright 2001 by Harcourt, Inc.Comparative AdvantageCompares producers of a 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.The Opportunity Cost

15、of Meat and PotatoesHarcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.Comparative Advantage and TradeThe Ranchers opportunity cost of an ounce of potatoes is 1/2 ounce of meat, whereas the Farmers opportunity cost of an ounce of potatoes is 1/4 an ounce of meat.The Ranchers oppo

16、rtunity cost of an ounce of meat is only 2 ounces pound of potatoes, while the Farmers opportunity cost of an ounce of meat is 4 ounces of potatoes.Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.Comparative Advantageso, the Rancher has a comparative advantage in the productio

17、n of meat but the Farmer has a comparative advantage in the production of potatoes.Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.The Principle of Comparative AdvantageComparative advantage and differences in opportunity costs are the basis for specialized production and trad

18、e.Whenever potential trading parties have differences in opportunity costs, they can each benefit from trade.Benefits of TradeTrade can benefit everyone in a society because it allows people to specialize in activities in which they have a comparative advantage.Adam Smith and TradeIn his 1776 book A

19、n 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 derived items copyright 2001 by Harcourt, Inc.David Ricardo and TradeIn his 1816 book Princip

20、les 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 Woods Mow His Own Lawn?Harcourt, Inc. items and derived items copyright 2001 by Harcourt, Inc.

21、APPLICATIONS OF COMPARATIVE ADVANTAGE Should the United States Trade with Other Countries?Each country has many citizens with different interests. International trade can make some individuals worse off, even as it makes the country as a whole better off. Importsgoods produced abroad and sold domesticallyExportsgoods produced domestically and sold abroadHarco