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“This last segment. We re going to talk about the miracle of trade gay as as you ll see here trade is like a technology and the amazing thing about well back in the first module. You learned that we cannot produce outside or beyond the production possibilities curve. However.
As you will see through specialization in the area of our comparative advantage and exchange or trade through specialization and exchange. We can consume beyond our production. Possibilities. Curve.
Well first of all let s fill in these lines. A little bit that fill in other parts of the graph of our production. Possibility curve. Let s talk with start with art arthur.
He can produce. He has a comparative advantage in bikes. Remember. So he is going to produce bikes.
So let s fill in another. Part this would be one web whoops. This would be one web page. This would be two web pages.
And then three web pages. Okay. So let s go ahead..
And to find these other points. Now. If arthur produces one web page. Then he has how many bikes can he produce well again.
If he produces one web page. He has to give up four bike repairs to get it so he has to come down from 12 to 4 less than 12. So that s another point at which he can choose if he wants he can produce there if he wants he can produce one webpage and a pipe repairs or he can produce two web pages. And how many bike repairs would that be well to produce that extra web page.
He has to give up another four bike repairs. So that would be four four bike repairs. And to web pages would be another production possibility so he can produce 12 bike repairs. And no web pages well here.
I should actually put a zero. There he could be at this point. Here give you at this point. Here this point here or he could produce three web pages and no bike repairs all right.
But he is going to specialize in bike repair. So he s going to actually produce at this point. That s his chosen production point. Twelve bike repairs and zero web pages.
Once again. We ll go back to our price of a web page equals two bike repairs. That s the market price..
So arthur s going to produce 12 bike repairs and if he wants to buy a web page. Which he would prefer to do than making himself right because he can buy it for half the price it costs him to produce it himself costs him for bike repairs to produce a web page. But he can purchase a web page for only two bike repairs so a point on arthur s consumption possibilities now this is this here this line here remember this is his production possibilities curve. This is what he can produce now we re looking at his consumption possibilities assuming he s producing at this point here where his comparative advantages bike repairs and if he wants any web pages.
He ll purchase them for two bike repairs. Let s say he wants one web page. It s going to cost him two bike repairs. So he s going to give up he s producing twelve bike repairs.
The scheme get up up two of them to get the web page that leaves him 10 bike repairs right he produced 12 paid to to get one web page. So that s a point on his consumption possibilities curve. If he wants another bike repair. Excuse.
Me excuse. Me boy got to be careful here. It s easy to make a mistake. If he wants another web page in other words.
If he wants to go from 1 to 2. He has to give up 2 more bike repairs right well giving up 2. More bike repairs or paying them to purchase one more webpage would leave him would leave him with 8 bike repairs so this here is a point on arthur s consumption possibilities curve and if he wants a third web page well he have to buy it somewhere from different than a dw right we re gonna assume there s another person out there with the exact same production possibilities s dw. Wants a third one.
It ll have to give up two more bike repairs that be six that leave him with six and another point on his consumption possibilities is right there. And that s it for him. Okay..
Well actually. It isn t it what am i talking about he can keep producing. I mean it s it further than i ve caught. But let s keep on going here let me erase this you can keep on going.
So. Let s keep on going. There are more dws out there i already said that so let s get going. He wants a fourth web page.
He d have to go from you know six down to two for bike repairs. He still got some whoops and there s another point he wants five web pages. You d have to give up two more that get him down to two there s another point. And if he wanted a sixth web page well that would be two more bike repair that would leave him zero you need to have six web pages.
So we connect the dots. There is arthur s consumption possibilities with specialization and trade and this here is his production possibilities okay let s look at dws production. Possibilities. Curve.
She s gonna specialize in the area of her comparative advantage. Which is webpages. So she s gonna produce right there two web pages. Now she can sell a web page remember for to bike repairs.
So if she wants to sell a web page that brings her down to one web page that s what she s got left. And what can she get for that web page two bike repairs. That s a point on her consumption..
Possibilities. Curve and what if she wants to sell one more web page that would take her down to two zero web pages. But she could sell that second web page for two more bike repairs that give her four bike repairs. That s another point on her consumption possibilities fill in the dots.
And there s dws consumption possibilities. The redline that s what she can produce. If she specializes in the area of her comparative advantage web. Pages.
So she s gonna produce two web. Pages and trade for bike repairs. She does that she can consume along this line outside her production possibilities. So if we re faced with a choice of consuming our production possibly cuz.
If we don t if we don t trade. What can we consume we can consume our law along our production possibilities. If we do no trading our consumption possibilities equals our production possibilities. But if we specialize in exchange.
We can consume beyond our production possibilities. So what what are most people gonna choose to do specialize in something and trade that s why most of what we consume we never made our most most of us never grew our own food. We don t make our own clothes and then build our house wouldn t build our car. We specialized and purchased those items from somebody else that s because specialization and ” .
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