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* 精选课件ppt Interdependence and Trade A general observation . . . Individuals and nations rely on specialized production and exchange as a way to address problems caused by scarcity. * 精选课件ppt Interdependence and Trade But, this gives rise to two questions: Why is interdependence the norm? What determines production and trade? * 精选课件ppt Why is interdependence the norm? Interdependence occurs because people are better off when they specialize and trade with others. * 精选课件ppt What determines the pattern of production and trade? Patterns of production and trade are based upon differences in opportunity costs. * 精选课件ppt Imagine . . . only two goods: potatoes and meat only two people: a potato farmer and a cattle rancher What should each produce? Why should they trade? A Parable for the Modern Economy * 精选课件ppt The Production Opportunities of the Farmer and the Rancher * 精选课件ppt Self-Sufficiency By ignoring each other: Each consumes what they each produce. The production possibilities frontier is also the consumption possibilities frontier. Without trade, economic gains are diminished. * 精选课件ppt Production Possibilities Frontiers Potatoes (pounds) Meat (pounds) 4 2 1 2 (a) The Farmer’s Production Possibilities Frontier 0 A * 精选课件ppt Production Possibilities Frontiers Potatoes (pounds) Meat (pounds) 5 40 20 2.5 (b) The Rancher’s Production Possibilities Frontier 0 B * 精选课件ppt The Farmer and the Rancher Specialize and Trade Each would be better off if they specialized in producing the product they are more suited to produce, and then trade with each other. The farmer should produce potatoes. The rancher should produce meat. * 精选课件ppt The Gains from Trade: A Summary * 精选课件ppt The Gains from Trade: A Summary * 精选课件ppt Trade Expands the Set of Consumption Possibilities Potatoes (pounds) Meat (pounds) 4 2 2 1 (a) How Trade Increases the Farmer’s Consumption 0 A 3 3 A* Farmer’s consumption without trade Farmer’s consumption with trade * 精选课件ppt Trade Expand
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