Interdependence - Chapter3 Interdependence and the Gains...

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INTERDEPENDENCE AND THE GAINS FROM TRADE 1 Chapter 3 Interdependence and the Gains from Trade
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INTERDEPENDENCE AND THE GAINS FROM TRADE 2 Consider these points: You wake up to an alarm clock made in Korea. You pour yourself orange juice made from Florida oranges and coffee made from Brazilian beans You put on aloha wear clothes made of cotton grown in Georgia and sewn in Thai factories. You watch the Today Show broadcast from Rockefeller Plaza in NYC on a TV made in Japan. You drive to class in a car made of parts manufactured in 25 different countries and assembled in Alabama.
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Interdependence Every day you rely on many people from around the world, most of whom you’ve never met, to provide you with the goods and services you enjoy. 0 coffee from Kenya dress shirt from China cell phone from Taiwan hair gel from Cleveland, OH
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INTERDEPENDENCE AND THE GAINS FROM TRADE Interdependence and  the Gains from Trade Why is interdependence the norm? Interdependence occurs because people are better off when they specialize and trade with others. What determines the pattern of production and trade? Patterns of production and trade are based upon differences in opportunity costs. Why are some leaders in Hawaii and the United States advocating self sufficiency? They represent or are associated with specific industries and workers who will benefit. They rarely acknowledge the overall losses to others in society from self sufficiency.
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INTERDEPENDENCE AND THE GAINS FROM TRADE 5 The Legacy of Adam Smith and David  Ricardo Adam Smith In his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith performed a detailed analysis of trade and economic interdependence. The analysis provides foundations for today’s theory of trade. David Ricardo In his 1816 book Principles of Political Economy and Taxation , David Ricardo developed the principle of comparative advantage, the cornerstone of today’s theory of trade.
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INTERDEPENDENCE AND THE GAINS FROM TRADE Production   Possibilities Self-Sufficiency By ignoring each other: Each consumes what they each produce. The production possibilities frontier is also the consumption possibilities frontier. Without trade, economic opportunities are diminished.
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INTERDEPENDENCE AND THE GAINS FROM TRADE 7 Interdependence One of the Ten Principles from Chapter 1: Trade can make everyone better off. We now learn why people – and nations – choose to be interdependent, and how they can gain from trade.
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INTERDEPENDENCE AND THE GAINS FROM TRADE 8 Our Example Two countries: the U.S. and Japan Two goods: computers and wheat One resource: labor, measured in hours We will look at how much of both goods each country produces and consumes if the country chooses to be self-sufficient if it trades with the other country 0
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INTERDEPENDENCE AND THE GAINS FROM TRADE 9 Production Possibilities in the U.S. 
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Interdependence - Chapter3 Interdependence and the Gains...

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