Ian, Paige, GabiWHY DO WE TRADE?

AbsoluteThe condition that

exists when someone can produce a good or service using fewer resources than someone else

Most efficient at producing all things

Comparative The condition

that exists when someone can produce a good or service at a lower opportunity cost than someone else

Benefit from specialization

Lowest costs

ABSOLUTE/COMPARATIVE ADVANTAGE

An approach to production in which individual workers become highly skilled at a specific task.

Choosing to produce only one thingYou are best at producing that one

thing over everything elseCountries specialize in making the

products that they’re best at, then trade with other countries

SPECIALIZATION

A relationship between two or more parties in which each is dependent on the other for necessary goods or services.

Economic interdependence occurs when all parties are specialized in certain areas and must trade with others to get necessary goods.

INTERDEPENDENCE

You are able to have and consume more things

Increases capital and production through specialization and interdependence

Trade increases PPF (production possibilities frontier)

Trade increases standard of living

SO WHY DO WE TRADE?

1. T/F: If Jane has an absolute advantage she should still trade with Ann

2. Jane specializes in corn and Ann specializes in bread. If there is a drought and Jane cant harvest corn Ann loses out because of

a. Comparative adv. c. Interdependence b. Absolute adv. d. Specialization3. If Ann focuses on making bread she can make 12 loaves. If Ann makes corn and bread she can only make 5 loaves and harvest 6 corns. She should focus on bread because of a. Comparative adv. c. Interdependence b. Absolute adv. d. Specialization

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