Interdependence and the Gains from Trade

onsider your typical day. You wake up in the morning and pour your self juice from oranges grown in Florida and coffee from beans grown in

Brazil. Over breakfast, you watch a news program broadcast from New York on your television made in Japan. You get dressed in clothes made of cotton grown in Georgia and sewn in factories in Thailand. You drive to class in a car made of parts manufactured in more than a dozen countries around the world. Then you open up your economics textbook written by an author living in Massachusetts, published by a company located in Ohio, and printed on paper made from trees grown in Oregon.

Every day, you rely on many people, most of whom you have never met, to provide you with the gtxnls and services that you enjoy. Such interdependence is possible because people trade with one another. Those people providing you goods and services are not acting out of generosity. Nor is some government agency directing them to satisfy your desires. Instead, people provide you and other consumers with the goods and services they produce because they get something in return.

In subsequent chapters, we examine how our economy coordinates the activities of millionĀ» of people with varying tastes and abilities. As a starting point for this analysis, here we consider the reasons for economic interdependence. One of Ihe tvti Principles of Ecvncmks highlighted in Chapter 1 is that trade can make everyone better off. In this chapter, we examine this principle more closely. What exactly do people gain when thev trade with one another? Why do people choose to become interdependent?

The answers to these questions are key to understanding the modern global economy. In most countries today, many goods and services consumed are imported from abroad, and many goods and scrviccs produced are exported to foreign customers. The analysis in this chapter explains interdependence not only among individuals but also among nations. As we will see, the gains from trade are much the same whether you are buying a haircut front your local baiter or a T-shirt made by a worker on the other skie of the globe.

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