1. CHAPTER 4
Gains from Trade

2. SPECIALIZATION
Specialization: doing one task/job very well.
Levels of Specialization: an area’s level of specialization depends on its population.
Areas with high population are more specialized due to larger markets
More rural areas are less specialized due to smaller markets
Specialization improves productivity through division of labor.
Division of labor: breaking up production into different specialized jobs in order to increase production
Increases speed of production
Improves quality of products
Improves standard of living
Example: High School teachers specialize in their subjects

3. SPECIALIZATION ENCOURAGES TRADE
Specializing in one good or service increases the need for other goods and services since no one is producing everything they need for themselves. THUS:
Specialization encourages trade because people need to obtain the things they do not produce themselves; they obtain these things by trading their goods/services for other goods/services
Money was created to make trade easier.

4. TRADE CREATES ECONOMIC INTERDEPENDENCE
Economic interdependence: depending on other people or countries to produce the goods or services you cannot produce yourself.
Countries must depend on each other because some lack the resources to produce certain goods or services
Trade Barriers: things that block or hinder trade between peoples or nations and thus force self-sufficiency
Ex: Tariffs (high taxes) that force Americans to buy goods made in the U.S.A
Ex: Typical American breakfast

5. GAINING FROM TRADE The Two Types of Advantages from Trade:
Absolute Advantage: the ability to be more efficient in the production of a good or service
Comparative Advantage: the ability to produce a product at a lower opportunity cost than another producer.
Comparative Advantage 1
Capitalism, Comparative Advantage & Absolute Advantage
Not always better to be the best at everything

6. TRADE MAKES US WEALTHIER
3 Ways Trade Improves Wealth:
Gets goods to those who value them
Not really talking about price
Increases number and variety of goods
Millions of choices for burgers, Chinese food, frozen yogurt, auto insurance, etc.,
Lowers the cost of goods
Opens up markets to less costly goods
Opens up opportunities to mass production which is a cheaper production method
Cheaper production costs means passing on those savings to the consumers by offering lower prices.

7. THE NEGATIVE SIDE TO TRADE (BUT NOT REALLY)
Having better comparative advantage could mean putting competitors out of business.
People lose jobs
This is why some people oppose free trade
HOWEVER trade can force people to gain new skills and abilities which THEN makes them more marketable.
If you’re making yourself more marketable…what does that mean you just increased?