Chapter 2 Economic Activities: Producing and Trading. Costs of Trade. Transaction costs Time and effort needed to search out, negotiate, and consummate a trade May cause trades to not take place Don’t know about the good Shipping costs are too high Don’t like to work with salesperson
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Both are Better off!!
1. Draw the production possibility curves for both countries. (Clothing on y-axis)
2. Which country has the comparative advantage in clothing? Food?
3. The United States and United Kingdom are negotiating a trade of food
and clothing between the countries. If the terms of trade is 25 units of
clothing for 15 units of food, should both counties agree?
Now we want to use these questions for the next chapter as we look at:
What a market is and how is it established.
Questions 1, 5, 12, and 17
Working with Graphs and Numbers: 1, 2, and 5
In-class exercise 3
Do we understand Chapter 2?