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Why Do We Trade?

Why Do We Trade?. Ian, Paige, Gabi. Absolute/Comparative Advantage. Absolute. Comparative . The condition that exists when someone can produce a good or service at a lower opportunity cost than someone else Benefit from specialization Lowest costs.

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Why Do We Trade?

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  1. Why Do We Trade? Ian, Paige, Gabi

  2. Absolute/Comparative Advantage Absolute Comparative The condition that exists when someone can produce a good or service at a lower opportunity cost than someone else Benefit from specialization Lowest costs • The condition that exists when someone can produce a good or service using fewer resources than someone else • Most efficient at producing all things

  3. Specialization • An approach to production in which individual workers become highly skilled at a specific task. • Choosing to produce only one thing • You are best at producing that one thing over everything else • Countries specialize in making the products that they’re best at, then trade with other countries

  4. Interdependence • A relationship between two or more parties in which each is dependent on the other for necessary goods or services. • Economic interdependence occurs when all parties are specialized in certain areas and must trade with others to get necessary goods.

  5. So Why Do We Trade? • You are able to have and consume more things • Increases capital and production through specialization and interdependence • Trade increases PPF (production possibilities frontier) • Trade increases standard of living

  6. Review Questions • T/F: If Jane has an absolute advantage she should still trade with Ann • Jane specializes in corn and Ann specializes in bread. If there is a drought and Jane cant harvest corn Ann loses out because of a. Comparative adv. c. Interdependence b. Absolute adv. d. Specialization 3. If Ann focuses on making bread she can make 12 loaves. If Ann makes corn and bread she can only make 5 loaves and harvest 6 corns. She should focus on bread because of a. Comparative adv. c. Interdependence b. Absolute adv. d. Specialization

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