Ch. 3_Interdependence and the Gains from Trade

Ch. 3_Interdependence and the Gains from Trade - : When one...

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Chapter 3: Interdependence and the Gains from Trade I. Gains from Trade and Specialization Gains from Trade : the principal that there are mutual gains that individuals can achieve by specializing in doing different things and then trading with one another. Absolute Advantage : The ability to produce a good using fewer inputs than another producer Who has Absolute Advantage in Cocos _______________ Fish _______________ If they don’t trade Tom consumes 28 Fish and 9 Coconuts If they don’t trade Tom consumes 6 Fish and 8 Coconuts Is this the best they can do? __________ Comparative Advantage
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Unformatted text preview: : When one producer can produce a good at a lower opportunity cost . Tom Wilson 1 more Fish 1 more Coco Who has Comparative Advantage in Cocos _______________ Fish _______________ Since they have different Opportunity Costs Better Option. II. They should each Specialize Specialize : Each focus on one item, They must each Benefit: Will the Following Trades Take place? 1. 8 Fish for 12 Coconuts 2. 15 Coconuts for 5 Fish 3. 10 Fish for 10 Coconuts Toms new consumption Bundle is _________________ Wilsons new Consumption Bundle is _________________...
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Ch. 3_Interdependence and the Gains from Trade - : When one...

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