specialization and exchange l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Specialization and Exchange PowerPoint Presentation
Download Presentation
Specialization and Exchange

Loading in 2 Seconds...

play fullscreen
1 / 17

Specialization and Exchange - PowerPoint PPT Presentation


  • 221 Views
  • Uploaded on

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

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Specialization and Exchange' - paul2


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
specialization and exchange
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
  • All economics exhibit high degrees of specialization and exchange
further gains to specialization
Further Gains to Specialization
  • Absolute Advantage: A Detour
    • Ability to produce a good or service using fewer resources than other producers use
  • Comparative Advantage
    • If one can produce some good with a smaller opportunity cost than others can
    • Total production of every good or service will be greatest when individuals specialize according to their comparative advantage
    • Another reason why specialization and exchange lead to higher living standards than self-sufficiency
labor requirements for berries and fish
Labor Requirements for Berries and Fish

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

gains from specialization and trade
Gains from specialization and Trade

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.

specialization in perspective
Specialization in Perspective
  • While specialization gives us material gains
    • There may be opportunity costs to be paid in the loss of other things we care about
    • Example: downside of specialization in family
  • The right amount of specialization can be found by balancing gains against costs
resource allocation
Resource Allocation
  • Problem of resource allocation
    • Which goods and services should be produced with society’s resources?
      • Where on the PPF should economy operate?
    • How should they be produced?
      • No capital at all
      • Small amount of capital
      • More capital
    • Who should get them?
      • How do we distribute these products among the different groups and individuals in our society?
      • Example: Who should get the scarce donor organs?
the three methods of resources allocation
The Three Methods of Resources Allocation
  • Traditional Economy
    • Resources are allocated according to long-lived practices from the past
  • Command Economy (Centrally-Planned)
    • Resources are allocated according to explicit instructions from a central authority
  • Market Economy
    • Resources are allocated through individual decision making
the three methods of resources allocation10
The Three Methods of Resources Allocation
  • Traditional Economy
    • Resources are allocated according to long-lived practices from the past
  • Command Economy (Centrally-Planned)
    • Resources are allocated according to explicit instructions from a central authority
  • Market Economy
    • Resources are allocated through individual decision making
the nature of markets
The Nature of Markets
  • A market is a group of buyers and sellers with the potential to trade with each other
    • Global markets
      • Buyers and sellers spread across the globe
    • Local markets
      • Buyers and sellers within a narrowly defined area
the importance of prices
The Importance of Prices
  • A price is the amount of money that must be paid to a seller to obtain a good or service
  • When people pay for resources allocated by the market
    • They must consider opportunity cost to society of their individual actions
  • Markets can create a sensible allocation of resources
resource allocation in the united states
Resource Allocation in the United States
  • Numerous cases of resource allocation outside the market
    • Such as families
  • Various levels of government collect about one-third of our incomes as taxes
    • Enables government to allocate resources by command
  • Government uses regulations of various types to impose constraints on our individual choice

Examples: environment and safety regulations

  • The market is the dominant method of resource allocation in United States
    • However, it is not a pure market
resource ownership
Resource Ownership
  • Communism
    • Most resources are owned in common
  • Socialism
    • Most resources are owned by state
  • Capitalism
    • Most resources are owned privately
types of economic systems
Types of Economic Systems
  • An economic system is composed of two features
    • Mechanism for allocating resources
      • Market
      • Command
    • Mode of resource ownership
      • Private
      • State
figure 4 types of economic systems

Resource Allocation

Market

Command

CentrallyPlanned Capitalism

MarketCapitalism

Private

Resource Ownership

Centrally Planned Socialism

Market Socialism

State

Figure 4: Types of Economic Systems
economic systems and this book
Economic Systems and This Book
  • This book will focus on market capitalist economies
  • About 400 million people have come under the sway of the market in past decade
  • More are being added as China changes to a market economy
  • Study of modern economies is study of market capitalism