Concepts
- Opportunity Cost
- Comparative Advantage
- Specialization and Trade (Adam Smith vs. David Ricardo)
- Imports
- Exports
- Terms of Trade
- Mutually Advantageous Trade
- Open Economy vs. Closed Economy
Overview
You have something I need, and I have something you need; Let’s trade! For as long as people have been on this earth, they have been engaging in trade with one another. “You grow bananas, that’s perfect, I grow oranges. Would you like to trade?” Trade, as you can probably tell, is a very important concept in economics. In this lesson, we’ll learn about David Ricardo’s (a famous 19th century economist) theory of specialization and trade. He proclaims that if we specialize our limited resources to produce what we have a comparative advantage in, and then trade with somebody else that produces what they have a comparative advantage in, we will both benefit. We can both CONSUME beyond our production possibilities curve. Next, we use the concept of specialization to identify who exports/imports each item. And finally, our lesson ends by looking at terms of trade, and identifying terms of trade that are mutually advantageous.
Materials
- Lecture Notes
- Practice Problems
Lecture
Video Coming at Later Date
Quiz
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