Specialization and Exchange. Specialization Method of production in which each person concentrates on a limited number of activities Exchange Practice of trading with others to obtain what we want Allows for Greater production Higher living standards than otherwise possible
Mary: opportunity cost of 1 fish=
Jim: opportunity cost of 1 fish=
Mary: opportunity cost of 1 cup berries=
Jim: opportunity cost of 1 cup berries=
Jim: Fish↓3 Mary: Fish ↑4
As long as opportunity costs differ, specialization and trade can be beneficial to all involved. This remains true regardless of whether the parties are different nations, different states, different countries, or different individuals. It remains true even if one party has an all-round absolute advantage.
Examples: environment and safety regulations