1. Gains from trade

2. What is trade? Why do people trade?
People trade to get things they don’t have. They also trade to make money.

3. Quick Thought
Think of everything that you can make in your home. Do you have enough skills and time to make everything you need to live?

4. Why don’t people make everything themselves?
People don’t always have the time.
People don’t always have the skills. Other people do.
People don’t often live in places where a suitable climate of the necessary resources are found.
Even in one has the skills, others probably could things either better or more cheaply.

5. Specialization and the division of labor
If one is very good at doing or creating something, specialization enables one to be more productive.
With the increased output, people can trade what they don’t need for what they do want.

6. What is specialization?
Specialization is the development of skills or knowledge in one aspect of a job or field.

7. What are some of the benefits of trade?
Trade moves goods to people who value them.
Trade creates more wealth and gives people more choices.
Trade also can help raise the standard of living.
Self-sufficiency may give rulers more control of their economics but historically self- sufficient countries don’t produce as much neither do they enjoy any of the benefits of trade.

9. Crash Course

10. Absolute and comparative advantage
How are they different?
Absolute Advantage is the condition in which some person or country can produce more of something with the same inputs or resources.
Comparative Advantage is the conditions in which some person or country can produce something with a lower opportunity cost than some other person or country.

11. The Principle of increasing opportunity cost
1. Start with resources with the lowest opportunity cost.
2. Then move to the next highest opportunity cost.
3. Continue if necessary to still higher opportunity cost.
Productivity will decline but there are still advantages to be gained vis specialization and trade.

12. Some results of greater trade in the 20th and 21st centuries
1. Offshoring
2. Globalization
3. More varied goods
4. Social and economic dislocation

13. Is trade always beneficial? Does anybody ever suffer from trade?
This is a matter of dispute.
Generally economist believe that trade is beneficial but not everybody agrees.
Trade does, e.g., cause some businesses and industries in a country to decline. Note how the manufacturing sector in the U.S. has changed over the past years. Entire industries, for instance shoes manufacturing, are no longer very competitive and have been replaced by cheaper foreign competition. Many workers have lost their jobs.

14. Absolute vs. comparative advantage
Ability to produce a good or service at a lower opportunity cost
Ability to produce a good or service using fewer resources.
Note: Absolute advantage does not necessarily imply comparative advantage
Gains from trade require specialization according to comparative advantage, not according to absolute advantage