1. GAINS FROM TRADE Specialization, Comparative, and Absolute Advantage

2. What is Specialization?  Self Sufficiency is great, but not economically productive  People specialize  Individual workers become highly skilled at a specific task  Adam Smith mentioned this in Wealth of Nations  Basically division of labor (think group projects)

3. Specialization leads to Trade  No longer producing everything, so we must trade  Trading frees up time and resources to do things we are better at.  Trade is voluntary---we give up something in order to get something else we want  Used to be bartering---coincidence of wants  Market economies use money to trade  Money only useful is it is generally accepted  Trade barriers hinder interdependence

4. How do we gain from trade?  Absolute Advantage  Condition of producing a good with fewer resources than someone else; or producing more of a good with same resources  Comparative Advantage  Ability to perform a task at a lower opportunity cost than someone else trying to perform the same task.  How to calculate? See video

5. So how does trade really help us?  Moves goods to people who value them  Increases quantity and variety of available goods  Lowers the cost of goods  It does, however, make more winners and losers  It helps the whole system, but may hurt individual areas