Principles of Economy Chapter 3: Interdependence and the Gains from Trade

This chapter dealt with the importance of trade. It also mentioned the different types of situations in which trade would and would not be convenient. Graphs can be made to describe the production possibilities. For example, one might want to know how many potatoes can be produced per hour if one focuses on only growing potatoes, vs. how many potatoes one can grow while also growing corn. The chapter talks about the importance of specialization and trade in order for the economy to work smoothly. One term in the chapter was absolute advantage which deals with he ability to produce a good using fewer inputs than another producer. Opportunity cost has to do with what has to be given up in order to obtain an item. Then, comparative advantage deals with the ability to produce a good at a lower opportunity cost than another producer. The chapter talks about how in some cases, international trade is most convenient for both the country that exports and the one that imports.  In conclusion, comparative advantage shows how trade can make everyone better off. Living in an interdependent economy is much better if one knows where and when to trade.