Division of Knowledge
Trade allows people to specialize, increasing total knowledge available
Example of Alice and Bob in 2-person society (each able to hold only knowledge from 2 books), both decide they will be self-sufficient (no trade)
Each only able to hold one book about basic food and one book about basic shelter, so total knowledge of the whole society is only basic info about food and shelter bc no trade (total knowledge of a society is only the knowledge of one individual bc no specialization and sharing of knowledge)
When you introduce trade, Alice can hold one basic and one advanced book about food and Bob can hold one basic and one advanced book about shelter because they don’t have to know everything for themselves (same brain capacity, but able to use it for specialized knowledge bc trade) , now the whole society has a greater collective knowledge and therefore standard of living as opposed to when everyone was self-sufficient and had the same knowledge
A country becomes better the more they trade because it encourages specialization and increases the influx of knowledge (allows people to focus on what they’re good at and rely on trade and other specialized people to make up for what they’re not good at)
Drexel University example (took an exorbitant amount of time to produce one 92% “local” suit made from materials produced without trade outside Philly, would have been much more efficient to use money from your job to go to a store and buy a mass-produced suit instead of wasting all that time and money to produce one semi-local bad suit, continuation of this “local only” mentality would lead to poverty in a society)
Bob is faster than Alice at making meat and bread
Absolute advantage- the ability to produce something using fewer inputs (inputs in example= minutes, Alive has no absolute advantage and Bob has absolute advantage with meat and bread)
Don't forget about the age old question of What are the basic characteristics of life?
Absolute says Bob should not trade with Alice bc he will lose money, but comparative advantage is about who can produce the most at the lowest opportunity cost
Alice has a comparative advantage in bread and Bob has a comparative advantage in meat, even though it takes Alice longer to make bread because both sides get more of each when Bob specializes in meat and Alice specializes in bread and they trade with one another (lowers the opportunity cost for both, refer to charts in powerpoint slides)
There is always room for a slower producer bc comparative is not about absolute advantage and determines what it most effective for an individual or country to produce
Trade is in your self-interest- simply look at what you can produce the fastest despite the fact you have the ability to produce other, secondary things (California and Kansas wheat example) and sell that one thing (specialization), allows people to work with others who may not produce the secondary things as fast bc more net benefit for both parties ( you don’t have to produce those secondary things and can put the most focus on the primary item that can make you the most money, you net more overall of your primary/can sell the surplus)
Trade is like technology (raises the overall living standards although some specific sectors of economy are worse off) because it converts easy to produce goods into hard to produce goods for a low cost
Trade makes both sides better off when the price is between the 2 opportunity costs, that’s how price is calculated We also discuss several other topics like How do you identify a molecular solid?
Don't forget about the age old question of What are the 3 domains of microorganisms?
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Don't forget about the age old question of What are the 5 classifications of matter?
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As you lower the cost of production for one item, it becomes costlier to produce something else, you will always have a comparative advantage in something, so it’s always possible to gain from trading