IN THIS CHAPTER
YOU WILL . . .
See how comparative
advantage explains
the gains fr om trade
Consider how
ever yone can benefit
when people trade
with one another
Learn the meaning of
absolute advantage
and comparative
advantage
Apply the theor y of
comparative
advantage to
ever yday life and
national policy
Consider your typical day. You wake up in the morning, and you pour yourself
juice from oranges grown in Florida and coffee from beans grown in Brazil. Over
breakfast, you watch a news program broadcast from New York on your television
made in Japan. You get dressed in clothes made of cotton grown in Georgia and
sewn in factories in Thailand. You drive to class in a car made of parts manufac-
tured in more than a dozen countries around the world. Then you open up your
economics textbook written by an author living in Massachusetts, published by a
company located in Texas, and printed on paper made from trees grown in Oregon.
Every day you rely on many people from around the world, most of whom you
do not know, to provide you with the goods and services that you enjoy. Such inter-
dependence is possible because people trade with one another. Those people who
provide you with goods and services are not acting out of generosity or concern for
your welfare. Nor is some government agency directing them to make what you
I N T E R D E P E N D E N C E A N D T H E
G A I N S F R O M T R A D E
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PART ONE
INTRODUCTION
want and to give it to you. Instead, people provide you and other consumers with
the goods and services they produce because they get something in return.
In subsequent chapters we will examine how our economy coordinates the ac-
tivities of millions of people with varying tastes and abilities. As a starting point
for this analysis, here we consider the reasons for economic interdependence. One
of the Ten Principles of Economics highlighted in Chapter 1 is that trade can make
everyone better off. This principle explains why people trade with their neighbors
and why nations trade with other nations. I