1Interdependence and the gains from tradeChapter 3Interdependence and tradeEconomic interdependence is a predominant characteristic of our country and our world. People dependent on other people.Countries dependent on other countries.Economists want to explain interdependence, because it goes to the heart of the way society organizes production and distribution.How do we satisfy our wants and needs?Two basic alternatives are available:1.We can be economically self-sufficient.2.We can specialize and trade with others, leading to economic interdependence.The overwhelming choice is trade; not self-sufficiencyIndividuals and nations rely on specialized production and exchange as a way to address problems caused by scarcity.Individuals and nations who have less “commerce” with others are inevitably not well off.Interdependence and tradeThis gives rise to two questions. . Why is interdependence the norm? What determines production and trade?A parable for the modern economyImagine . . .. . Only two goods (potatoes; meat).. . Only two people (potato farmer; cattle rancher).What should each produce?Why should they trade?
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