Gains from Trade

Is it better to be awesome at one thing or awesome at many things? Why or why not?

Specialization: doing one task/job very well. Levels of Specialization: an area’s level of specialization depends on its population.  Areas with high population are more specialized due to larger markets  More rural areas are less specialized due to smaller markets Specialization improves productivity through division of labor.  Division of labor: breaking up production into different specialized jobs in order to increase production  Increases speed of production  Improves quality of products  Improves standard of living Example: High School teachers specialize in their subjects

Specializing in one good or service increases the need for other goods and services since no one is producing everything they need for themselves. THUS:  Specialization encourages trade because people need to obtain the things they do not produce themselves; they obtain these things by trading their goods/services for other goods/services Money was created to make trade easier.

Economic interdependence: depending on other people or countries to produce the goods or services you cannot produce yourself. Why do YOU think countries must depend on each other when it comes to trade? Trade Barriers: things that block or hinder trade between peoples or nations and thus force self-sufficiency  Ex: Tariffs (high taxes) that force Americans to buy goods made in the U.S.A

The Two Types of Advantages from Trade:  Absolute Advantage: the ability to be more efficient in the production of a good or service  Comparative Advantage: the ability to produce a product at a lower opportunity cost than another producer.

3 Ways Trade Improves Wealth:  Gets goods to those who value them  Not really talking about price  Increases number and variety of goods  Millions of choices for burgers, Chinese food, frozen yogurt, auto insurance, etc.,  Lowers the cost of goods  Opens up markets to less costly goods  Opens up opportunities to mass production which is a cheaper production method

Having better comparative advantage could mean putting competitors out of business. People lose jobs This is why some people oppose free trade HOWEVER trade can force people to gain new skills and abilities which THEN makes them more marketable.