This document discusses the concepts of trade and comparative advantage. It begins by explaining the conditions needed for a market to exist, such as an overlapping value range between buyers and sellers. It then discusses how trade creates both winners and losers but that overall gains outweigh losses. Comparative advantage is presented as the basis for trade, where countries specialize and trade based on what they can produce at a lower opportunity cost rather than absolute advantage. An example is given comparing time spent fishing and making hooks by individuals to illustrate gains from specialization and trade.

2. Economic
Development
Lecture 29
Trade and Development
Chapter 18

3. Questions?

4. Chapter 18
Trade and Development

5. Buyer
Seller
$120
$80
PriceValue Range
Too High
Too Low
many sellers
no buyers
many buyers
no sellers

6. Seller
Buyer
$120
$80
No Overlap
No Common
Value Range
No Market
Least
Most

7. Seller
Buyer
$120
$80
Common
Value
Range
Least
Most
Trade
Possible?

9. 75%
25%

10. Winners and Losers
Consumers
Competition
Producers
Gains outweigh losses

11. Gains
Competition
New Technology
Quantity andVariety
Social Relationships

12. Why Trade?
More for Less
Imports, not exports
are the purpose of
trade

13. Absolute Advantage
Produce more with
the same amount of
inputs

14. Comparative Advantage
Produce at a lower
opportunity cost

15. David Ricardo
(1772 - 1823)
Principles of
Political Economy
andTaxation
1817
Comparative Advantage

16. The basis for trade is
comparative advantage,
not
absolute advantage.

18. Adam Eve
Total
Hours
Make a
Hook
3 2 5
Catch
a Fish
4 1 5
Total
Hours
7 3 10
No Trade
2 Hooks and 2 Fish
10 Hours - 5 Hours per Fish

19. Adam Eve
Total
Hours
Make a
Hook
2 hooks
6 hours
6
Catch
a Fish
2 fish
2 hours
2
Total
Hours
6 2 8
With Trade
2 Hooks and 2 Fish
8 Hours - 4 Hours Per Fish

21. Country Gains
Not all individuals
gain equally