Interdependence and trade But, this gives rise to two questions Why is the interdependence the e norm ? What determine production and trade?
Interdependence and Trade • But, this gives rise to two questions: – Why is the interdependence the norm? – What determine production and trade?
Why is the interdependence the norm Interdependence occurs because people are better off when they specialize and trade with others
Why is the interdependence the norm? • Interdependence occurs because people are better off when they specialize and trade with others
What determines the pattern of production and trade Patterns of production and trade are based upon the differences in opportunity costs
What determines the pattern of production and trade? • Patterns of production and trade are based upon the differences in opportunity costs
A Parable for Modern Economy ° Imagine Only two goods: potatoes and meat Only two people: a farmer and a rancher What should each produce? Why should they trade?
A Parable for Modern Economy • Imagine… – Only two goods: potatoes and meat – Only two people: a farmer and a rancher • What should each produce? • Why should they trade?
The Production Opportunities of the farmer and the rancher Hours Needed to Make 1 lb of Amount Produced in 40 Hours Meat Potatoes Meat Potatoes Farmer 20 hour /b 10 hours b 2 lbs. 4 Rancher 1 hours/b 8hours/b. 40 bs 5 lbs
The Production Opportunities of the Farmer and the Rancher Hours Needed to Make 1 lb. of: Amount Produced in 40 Hours Meat Potatoes Meat Potatoes Farmer 20 hours/lb 10 hours/lb 2 lbs. 4 lbs. Rancher 1 hours/lb 8 hours/lb. 40 lbs. 5 lbs