ECON 2100 Lecture 1: Chapter 3- Interdependence and the Gains from Trade

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Published on 26 Aug 2016
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Chapter 3-Interdependence and the Gains from Trade
Why do people and nations choose to be economically interdependent? The U.S benefits from
borrowing from other nations. Other nations produce different goods that are substantial to the
needs of the American population.
How can trade make everyone better off? Each nation can focus on their main commodities and
what grows/sells best in there nation. For example, Greece focuses on growing olives because
they can produce olives and lots of them. They export them and import other goods in
Interdependence- Relying on many people around the world and most of whom you have never
met. Trade is an example of interdependence because nations rely on the imports and trade
from other countries in order to survive and live.
Some countries produce the same goods of another country, but for less. Meaning that we
would trade and import more for our money!
Production Abilities of Farmer and Rancher- The farmer is faster at producing potatoes with 15
min/oz and 60 min./oz. The rancher is faster at producing meat at 20 min./oz. and faster for
potatoes a 10 min./oz. Overall, the rancher is more time efficient when producing meat and
potatoes. The rancher can produce 24 oz. of meat compared to the farmer producing 8 oz. in an
8 hour period. The labor and production of the rancher is more efficient cost and time wise. In
this scenario, you can get more for your money and time.
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When looking into whether the farmer or the rancher is better, you have to look at the amount
consumed as well.
Even though the farmer is slower at producing the meat and potatoes, which does not
automatically, make the rancher the most efficient in this case. The farmer can produce 32
ounces of potatoes, but no meat. However, when both trade with one another, they both
benefit because of the farmer’s large production of potatoes and the rancher’s large production
of meat. The rancher does come out with more, but the farmer did a fair trade and ended up
earning in the end as well.
Ends on slide 7
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