Chap-03Interdependence-and-the-Gains-from-Trade(曼昆

InterdependenceandtheGainsfromTradeChapter3InterdependenceandTradeConsideryourtypicalday:YouwakeuptoanalarmclockmadeinKorea.YoupouryourselfsomeorangejuicemadefromorangesgrowninFlorida.YouputonsomeclothesmadeofcottongrowninGeorgiaandsewninfactoriesinThailand.YouwatchthemorningnewsbroadcastfromNewYorkonyourTVmadeinJapan.Youdrivetoclassinacarmadeofpartsmanufacturedinahalf-dozendifferentcountries.…andyouhaven’tbeenupformorethantwohoursyet!InterdependenceandTradeRemember,economicsisthestudyofhowsocietiesproduceanddistributegoodsinanattempttosatisfythewantsandneedsofitsmembers.Howdowesatisfyourwantsandneedsinaglobaleconomy?Wecanbeeconomicallyself-sufficient.Wecanspecializeandtradewithothers,leadingtoeconomicinterdependence.InterdependenceandTradeAgeneralobservation...Individualsandnationsrelyonspecializedproductionandexchangeasawaytoaddressproblemscausedbyscarcity.InterdependenceandTradeBut,thisgivesrisetotwoquestions:Whyisinterdependencethenorm?Whatdeterminesproductionandtrade?Whyisinterdependencethenorm?Interdependenceoccursbecausepeoplearebetteroffwhentheyspecializeandtradewithothers.Whatdeterminesthepatternofproductionandtrade?Patternsofproductionandtradearebasedupondifferencesinopportunitycosts.Imagine...onlytwogoods:potatoesandmeatonlytwopeople:apotatofarmerandacattlerancherWhatshouldeachproduce?Whyshouldtheytrade?AParablefortheModernEconomyTheProductionOpportunitiesoftheFarmerandtheRancherHoursNeededtoMake1lb.of:AmountProducedin40HoursMeatPotatoesMeatPotatoesFarmer20hours/lb10hours/lb2lbs.4lbs.Rancher1hours/lb8hours/lb.40lbs.5lbs.Self-SufficiencyByignoringeachother:Eachconsumeswhattheyeachproduce.Theproductionpossibilitiesfrontierisalsotheconsumptionpossibilitiesfrontier.Withouttrade,economicgainsarediminished.ProductionPossibilitiesFrontiersPotatoes(pounds)Meat(pounds)4212(a)TheFarmer’sProductionPossibilitiesFrontier0AProductionPossibilitiesFrontiersPotatoes(pounds)Meat(pounds)540202.5(b)TheRancher’sProductionPossibilitiesFrontier0BTheFarmerandtheRancherSpecializeandTradeEachwouldbebetteroffiftheyspecializedinproducingtheproducttheyaremoresuitedtoproduce,andthentradewitheachother.Thefarmershouldproducepotatoes.Theranchershouldproducemeat.TheGainsfromTrade:ASummaryTheOutcomeWithoutTrade:WhatTheyProduceandConsumeFarmer1lbmeat(A)2lbspotatoesRancher20lbsmeat(B)2.5lbspotatoesTheGainsfromTrade:ASummaryTheOutcomeWithTrade:WhatTheyProduceWhatTheyTradeWhatTheyConsumeFarmer0lbsmeat4lbspotatoesGets3lbsmeatfor1lbpotatoes3lbsmeat(A*)3lbspotatoesRancher24lbsmeat2lbspotatoesGives3lbsmeatfor1lbpotatoes21lbsmeat(B*)3lbspotatoesTradeExpandstheSetofConsumptionPossibilitiesPotatoes(pounds)Meat(pounds)4221(a)HowTradeIncreasestheFarmer’sConsumption0A33A*Farmer’sconsumptionwithouttradeFarmer’sconsumptionwithtradeTradeExpandstheSetofConsumptionPossibilitiesPotatoes(pounds)Meat(pounds)52.54020(b)HowTradeIncreasesTheRancher’sConsumption0B213B*Rancher’sconsumptionwithouttradeRancher’sconsumptionwithtradeTheGainsfromTrade:ASummaryTheGainsFromTrade:TheIncreaseinConsumptionFarmer2lbsmeat(A*-A)1lbpotatoesRancher1lbmeat(B*-B)1/2lbpotatoesThePrincipleofComparativeAdvantageWhoshouldproducewhat?Howmuchshouldbetradedforeachproduct?Whocanproducepotatoesatalowercost--thefarmerortherancher?Differencesinthecostsofproductiondeterminethefollowing:DifferencesinCostsofProductionThenumberofhoursrequiredtoproduceaunitofoutput.(forexample,onepoundofpotatoes)Theopportunitycostofsacrificingonegoodforanother.Twowaystomeasuredifferencesincostsofproduction:AbsoluteAdvantageDescribestheproductivityofoneperson,firm,ornationcomparedtothatofanother.Theproducerthatrequiresasmallerquantityofinputstoproduceagoodissaidtohaveanabsoluteadvantageinproducingthatgood.ComparativeAdvantageComparesproducersofagoodaccordingtotheiropportunitycost.Theproducerwhohasthesmalleropportunitycostofproducingagoodissaidtohaveacomparativeadvantageinproducingthatgood.SpecializationandTradeWhohastheabsoluteadvantage?Thefarmerortherancher?Whohasthecomparativeadvantage?Thefarmerortherancher?AbsoluteAdvantageTheRancherneedsonly8hourstoproduceapoundofpotatoes,whereastheFarmerneeds10hours.TheRancherneedsonly1hourtoproduceapoundofmeat,whereastheFarmerneeds20hours.TheRancherhasanabsoluteadvantageintheproductionofbothmeatandpotatoes.TheOpportunityCostofMeatandPotatoesOpportunityCostof:1lbofMeat1lbofPotatoesFarmer2lbpotatoes?lbmeatRancher1/8lbpotatoes8lbmeatComparativeAdvantageTheRancher’sopportunitycostofapoundofpotatoesis8poundsofmeat,whereastheFarmer’sopportunitycostofapoundofpotatoesis1/2poundofmeat.TheRancher’sopportunitycostofapoundofmeatisonly1/8poundofpotatoes,whiletheFarmer’sopportunitycostofapoundofmeatis2poundsofpotatoes...ComparativeAdvantage…so,theRancherhasacomparativeadvantageintheproductionofmeatbuttheFarmerhasacomparativeadvantageintheproductionofpotatoes.ThePrincipleofComparativeAdvantageComparativeadvantageanddifferencesinopportunitycostsarethebasisforspecializedproductionandtrade.Wheneverpotentialtradingpartieshavedifferencesinopportunitycost