In Class – Week 2 Gains from Exchange

In Class – Week 2
Gains from Exchange
Why do people willingly trade?
Learning Objective 2.2
Comparative Advantage and Trade
Trade The act of buying or selling.
Specialization and Gains from Trade
Production Possibilities for You and
Your Neighbor, without Trade
How does this work?
• Two people in this market
– You and Your Neighbor
• Two goods being produced
– Apples and Cherries
• See if you can do better by specializing
– That is, what has the least opportunity costs for
each of you to produce
• What will be the market price for exchange?