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
FIGURE 2-4
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?