02_TradeNpropertyrights_

02_TradeNpropertyrights_ - 1 Trade & Property...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1 Trade & Property Rights (Section 2) I. Opportunity Cost Opportunity costs (OC)- What you had to give up to do what you did. - 2 nd best choice (fully tallied up not just out of pocket costs) Exs (Give possible OC): Going to a free movie at night: Going to college: Reading textbook for this class: Football game Accounting profit = Total revenue Total costs Economic profit- Earnings in excess of your 2 nd best alternative Ex : If a business owners total revenue equals $100,000 & her costs equal $80,000. What is her accounting profit? Does she have a positive economic profit? 2 II. Trade creates value A. Trade as mutual benefit 1. When individuals engage in voluntary exchange both parties are better off If I gain from cooperating (i.e. trading) with you it is in my selfish interest to do so. But doesnt this imply that it wont be in your selfish interest to do so? Most often positive-sum games: Whole idea of trade: I have A & you have B. I prefer B to A & you prefer A to B Many , Many , examples of positive-sum games: Buying a newspaper Buying a house Selling labor Specific example: Justin sells Josh a car for $1000 How much does Justin value the car? How much does Josh value the car? It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. Adam Smith, The Wealth of Nations 3 2. Trade increases the wealth of society Key point: the value of a product is different among different individuals Back to specific example: If Justin values the car at $500 & Josh values the car at $1,100, How much does societys wealth increase due to the trade? 4 B. Fallacy: Voluntary trade is exploitation Hopefully section A makes sense but people spend a great deal of effort arguing that voluntary trade is exploitation. Exs I hire Simon to mine coal for $1/day I charge Ron $10,000 for a glass of water in the desert Article on sweatshops http://www.csmonitor.com/2005/0802/p09s02-coop.htm 5 C. Transaction costs Transaction costs- The time, effort, and other resources needed to search out, negotiate, & complete an exchange Back to our specific example: (If Justin [who owns the car] values the car at $500 & Josh values the car at $1,100) And a third party, Frank values the car at $800. Suppose to ship the car to Josh it costs $500, but there is no shipping charges to ship it to Frank. Who does Justin trade with (if Josh and Frank compete)? How much does society lose by Josh and Justin not living by each other? The seller of a car does not usually find the person willing to pay the most for it. Things that may reduce transaction costs: D. trade as technology (International Trade) A story about a factory that changes wheat into cars 6 III. Importance of Property rights This talk of trade implicitly assumes that the traders have property rights Similar to trade people often think of property in terms of exploitation. exploitation....
View Full Document

Page1 / 27

02_TradeNpropertyrights_ - 1 Trade & Property...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online