Chapter 3

Chapter 3 - Chapter 3 Interdependence and the Gains from...

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Chapter 3 Interdependence and the Gains from Trade
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Interdependence and the Gains from Trade How do we satisfy our wants and needs in a global economy? We can be economically self-sufficient. We can specialize and trade with others, leading to economic interdependence.
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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.
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A Parable for the Modern Economy Two goods: meat and potatoes Two people: rancher and farmer If rancher produces only meat a nd farmer produces only potatoes Both gain from trade If both rancher and farmer produce both meat and potatoes They still gain from specialization and trade
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Suppose the farmer and rancher decide not to engage in trade: Each consumes only what he or she can produce alone. The production possibilities frontier is also the
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This note was uploaded on 04/26/2011 for the course ECON 201 taught by Professor Joyce during the Spring '07 term at Drexel.

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Chapter 3 - Chapter 3 Interdependence and the Gains from...

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