Why people trade domestically & Internationally

1. Why people trade domestically & Internationally

2. Voluntary exchange of goods and services. • When the expected gains from trade outweigh the expected costs, trade will occur. • This is true for individuals and businesses trading within a country or when people trade with people and organizations in other countries. What is trade?

3. People voluntarily exchange goods and services because they expect to be better off after the exchange. • Voluntary exchange among people or organizations in different countries gives people a broader range of choices in buying goods and services. Why do people trade?

4. Like trade among individuals within one country, international trade promotes specialization and division of labor and increases output and consumption. Why do People Trade?

5. Comparative advantage is fundamental reason to trade. • Comparative advantage is specializing in the production of goods and services that can be produced at a lower opportunity cost then the cost a trading partner would have to pay to produce the same products. • Specialization is based on comparative advantage increases the total output and consumption of goods that are traded. What is comparative advantage?

6. Individuals and nations have a comparative advantage in the production of goods or services if they can produce a product at a lower opportunity cost than other individuals and nations. Why do people trade internationally?

7. Absolute advantage occurs when a country can produce a produce more efficiency (greater output per unit of input) than can another country. • In other words, when a country/business/individual can produce more of a good/service than someone else with the same amount of productive resources. What is absolute advantage?

8. Overall levels of satisfaction increase when people and firms specialize and trade. • Construct and interpret