Interdependence and the Gains from Trade. Chapter 3. Interdependence and Trade. Remember, economics is the study of how societies produce and distribute goods in an attempt to satisfy the wants and needs of its members. How do we satisfy our wants and needs in a global economy?.
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Remember, economics is the study of how societies produce and distribute goods in an attempt to satisfy the wants and needs of its members.
Farmer’s consumption without tradeTrade Expands the Set of Consumption Possibilities
(a) How Trade Increases the Farmer’s Consumption
Rancher’s consumption without trade
Meat (pounds)Trade Expands the Set of Consumption Possibilities
(b) How Trade Increases The Rancher’s Consumption
Each would be better off if they specializedin producingthe product they are more suited to produce, and thentradewith each other.
Differences in the costs of production determine the following:
Who can produce potatoes at a lower cost--the farmer or the rancher?
1 pound of meat
1 pound of potatoes
2 pounds of potatoes
1/2 pound of meat
1/8 pounds of potatoes
8 pounds of meat