Sunday, September 13, 2015
Chapter 3:Interdependence and the Gains from Trade
Trade is beneficial to everyone involved. It isn't a competition, and actually involves specialization, where people focus on one good to produce rather than many. If there were two people who both had to produce bread and butter, but if one has a comparative advantage, trade would benefit them both. This is true because when one specializes in producing a good when he/she has a comparative advantage, the total production in the economy rises. The thing about comparative advantage is if both can produce a good at the same opportunity cost, then there would be no advantage and therefore no incentive to trade. However, is trade beneficial to both sides trading if one side has no comparative advantage? Trade in the world right now is much more complex than this so this stumps me. Overall I would give this a 2 in difficulty because it is simple to understand the trading scenario of simple trade, but in a more complex world that's not the case.
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