Premium PowerPoint Slides by:
V. Andreea CHIRITESCU
Eastern Illinois University
N. GREGORY MANKIW
PRINCIPLES OF
ECONOMICS
Eight Edition
Interdependence and
the Gains from Trade
CHAPTER
3
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Look for the answers to these questions:
•Why do people –and nations –choose to
be economically interdependent?
•How can trade make everyone better off?
•What is absolute advantage?
•What is comparative advantage?
•How are these concepts similar?
•How are they different?
2
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Interdependence
Every day you
rely on many
people from
around the
world, most of
whom you’ve
never met, to
provide you
with the goods
and services you
enjoy.
3
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
coffee from
Kenya
dress shirt
from China
cell phone
from Taiwan
hair gel from
Cleveland, OH
Interdependence
• “Trade can make everyone better off”
–One of the Ten Principles from Chapter 1
–We now learn why people –and nations –
choose to be interdependent
–And how they can gain from trade
4
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
ASK THE EXPERTS
5
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Trade between China and the United States
“Trade with China makes most Americans
better off because, among other advantages,
they can buy goods that are made or
assembled more cheaply in China.”
Our Example
•Two countries:
–The U.S. and Japan
•Two goods:
–Computers and wheat
•One resource:
–Labor, measured in hours
•How much of both goods each country produces
and consumes
–If the country chooses to be self-sufficient
–If it trades with the other country
6
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.
Our Example
•Production Possibilities in the U.S.
–The U.S. has 50,000 hours of labor
available for production, per month
–Producing one computer requires 100
hours of labor
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