Class summary 10/21

Econ 10/21/11

Trade is difficult, we just shuffle stuff around the world, how is it possible that trading makes us rich?

People cooperate to get what they want

#1. How trades make us rich?

Mike trades a card that worth 200 dollars for another card that is only 2 cents.

Mike gets the set of 760 cards completed

Before:                                      After:

$200 $8000

$1000 $200

$0.02

$1200.02 $8200

After trading, total GDP increases a lot

Trade allows us to produce things in the first place

#2. How trades make us rich?

Hours to complete yardwork

                          Mike                      Rich

Weeding      80mins                 120mins

Mowing       40mins                  120mins

Total            120mins                240mins

Rich proposed to weed 3/4 of my driveway if I mowed his lawn

Mike                      Rich

Weeding      20mins                 120+90mins

Mowing       40+40mins             0min

Total            100mins                210mins

Before 6 hours for total, and after 5 hours and 10 minutes to get the SAME OUTCOME

Production Possibilities Frontier (PPF)
 

1. All points on line are feasible

2. All points

3. Absolute advantage

4. All points on the PPF “productivity” efficient ( a. produce at low cost, b. produce what people want)---on the proper place on the frontier

5. Slope

6. Law of Diminishing Returns

7. Economic Growth (From a. resources b. Technology c. Trade)