1. Chapter 4 Gaining From Trade

2. Question Is it better to be good at doing a lot of different things or to be great at one thing? Should people specialize their talents or not? What examples can you use to support your argument?

3. Specialization Improves Productivity Specialization – doing one task/job very well Distribution of Labor – breaking up production into specialized departments for increased productivity Increases how fast things are created Increases the quality of things created Increases the standard of living by having better products faster Levels of specialization depend on population Highly populated areas can be highly specialized due to lots of people doing similar jobs Rural areas forced to be less specialized

4. Specialization Encourages Trade People specialize, so they need more goods, which encourages trade Creates voluntary exchange - people enter into exchanges because they know they will both benefit from it Old systems would barter - trade good for good but it required a coincidence of wants – Having something someone else wants Can be troublesome due to finding people that want your stuff Currency now created as a way to make exchanges easier

5. Trade Creates Economic Interdependence Economic Interdependence Depending on other people or countries to have the goods you do not create yourself Requires a steady supply Trade Barriers Things that hinder the trade between people or countries and force self-sufficiency Tariffs, high taxes on foreign goods, that force people to buy American or close to home

6. Gaining from Trade Two types of advantages in trading Absolute advantage – ability to be more efficient in every type of production of a good You make it better and faster than anyone Comparable advantage – ability to perform a task at a lower opportunity cost than others You benefit by giving up less than the other would to make a product Not always better to be the best at everything

7. Gaining Wealth from Trade Trade raises our standard of living Gain wealth in 3 ways: 1. Gets goods to those who value them 2. Increases the number and variety of goods Incredible numbers of similar products for people to choose 3. Lowers the cost of goods Opens people to cheaper products from different markets Also opens to larger markets – allowing mass production

8. Negative Side of Trade Trade can negatively affect people as well Areas with better comparable advantage can put others out of business Causes people to lose jobs, which is why they oppose the free trade or free market system Not truly a negative Forces people to gain new skills and abilities In turn makes them more marketable