CH 3 Gains From Trade - Specializing trading creates...

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Specializing & trading creates standard of living that is better Opportunity cost is the key to trade Deals are mutually beneficial Must specialize in the right good Absolute advantage : ability to produce more of the good with the same resources Lesson of the day: if you specialize in your absolute advantage & trade for the other party’s absolute advantage, both will be better off What happens when one side has the absolute advantage in everything? Do they have anything to gain? Seller’s min price/buyer’s max price = opportunity cost Seller’s min < price < buyer’s max When seller’s min exceeds buyer’s max, there’s no room for a deal (no matter who has the absolute advantage) Key to trade is comparative advantage For a deal to go down Sellers min price < buyer’s max price Seller’s min price = OC Buyer’s max price = OC Seller OC < Buyer OC Producer of good will be the party w/ lower OC
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