【正文】 under trade ? How much of each good is consumed in the .? Plot this bination on the . PPF. ? How much of each good is consumed in Japan? Plot this bination on Japan’s PPF. Suppose the . exports 700 tons of wheat to Japan, and imports 110 puters from Japan. (So, Japan imports 700 tons wheat and exports 110 puters.) 55 CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE 4,000 100 5,000 2,000 1,000 3,000 500 200 300 400 0 Computers Wheat (tons) . Consumption With Trade 2700 270 = amount consumed 0 110 + imported 700 0 – exported 3400 160 produced wheat puters 56 CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE Japan’s Consumption With Trade Computers Wheat (tons) 2,000 1,000 200 0 100 300 700 130 = amount consumed 700 0 + imported 0 110 – exported 0 240 produced wheat puters 57 CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE Trade Makes Both Countries Better Off 200 2,700 2,500 wheat 20 270 250 puters gains from trade consumption with trade consumption without trade . 100 700 600 wheat 10 130 120 puters gains from trade consumption with trade consumption without trade Japan 58 CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE Where Do These Gains Come From? ? Absolute advantage: the ability to produce a good using fewer inputs than another producer ? The . has an absolute advantage in the production of wheat: producing a ton of wheat uses 10 labor hours in the . vs. 25 in Japan. ? If each country has an absolute advantage in one good and specializes in that good, then both countries can gain from trade. 59 CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE Where Do These Gains Come From? ? Which country has an absolute advantage in puters? ? Producing one puter requires 125 labor hours in Japan, but only 100 in the . ? The . has an absolute advantage in both goods! So why does Japan specialize in puters? Why do both countries gain from trade? 60 CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE Two Measures of the Cost of a Good ? Two countries can gain from trade when each specializes in the good it produces at lowest cost. ? Absolute advantage measures the cost of a good in terms of the inputs required to produce it. ? Recall: Another measure of cost is opportunity cost. ? In our example, the opportunity cost of a puter is the amount of wheat that could be produced using the labor needed to produce one puter. 61 CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE Opportunity Cost and Comparative Advantage ? Comparative advantage: the ability to produce a good at a lower opportunity cost than another producer ? Which country has the parative advantage in puters? ? To answer this, must determine the opp. cost of a puter in each country. 62 CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE Opportunity Cost and Comparative Advantage ? The opp. cost of a puter is ? 10 tons of wheat in the ., because producing one puter requires 100 labor hours, which instead could produce 10 tons of wheat. ? 5 tons of wheat in Japan, because producing one puter requires 125 labor hours, which instead could produce 5 tons of wheat. ? So, Japan has a parative advantage in puters. Lesson: Absolute advantage is not necessary for parative advantage! 63 CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE Comparative Advantage and Trade ? Differences in opportunity cost and parative advantage create the gains from trade. ? When each country specializes in the good(s) in which it has a parative advantage, total production in all countries is higher, the world’s “economic pie” is bigger, and all countries can gain from trade. ? The same applies to individual producers (like the farmer and the rancher) specializing in different goods and trading with each other. 64 CHAPTER 3 INTERDEPENDENCE AND THE GAINS FROM TRADE CHAPTER SUMMARY ? Interdependence and trade allow everyone to enjoy a greater quantity and variety of goods amp。 services. ? Comparative advantage means being able to produce a good at a lower opportunity cost. Absolute advantage means being able to produce a good with fewer inputs. ? When people – or countries – specialize in the goods in which they have a parative advantage, the economic “pie” grows and trade can make everyone better off.