Trade and Differing Preferences

… a core concept in Economic Analysis and Atlas102

Click for MRU video, minute 0.40 to 2:00

Click for MRU video, minute 0.40 to 2:00

Concept description

Tyler Cowen (reference below, video on right), describes how trade makes people better off when their preferences for a particular good or service differ.

This is one of the three benefits of trade:

  1. Trade makes people better off when preferences differ
  2. Trade increases productivity through specialization (see Division of Labour) and the Division of Knowledge
  3. Trade increases productivity through specialization according to Comparative Advantage

Cowen uses the example of eBay to illustrate that by transferring good from a person who values it a low amount (junk in the attic) to another person who values it highly in return for a payment makes both the buyer and seller better off.

TradeAndPrefernences

Practice questions

From http://www.mruniversity.com/node/201821, accessed 4 May 2016.

  1. How is international trade similar to domestic trade?

Atlas topic, subject, and course

Trade (core topic) in Economic Analysis and Atlas102 Economic Analysis.

Source

Tyler Cowen, The Big Ideas of Trade (11-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/trade-specialization-economics-globalization, accessed 5 May 2016.

Page created by: Ian Clark, last modified 5 May 2016.

Image: Tyler Cowen, minute 0:14 of The Big Ideas of Trade (11-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/trade-specialization-economics-globalization, accessed 5 May 2016.