Trade

• The real power of trade is the power to increase production through specialization

• Through the division of knowledge, the sum total of knowledge increases and so does productivity

• Trade also allows us to take advantage of economies of scale

  • Economies of scale: reduction of costs created when goods are mass-produced

    • Ex: no farmer could ever afford a combine harvester if he was growing wheat for himself, but when a farmer grows wheat for thousands, a combine harvester reduces the cost of bread for all

• Theory of comparative advantage: says that when people or nations specialize in goods in which they have a low opportunity cost, they can trade to mutual advantage

  • Ex: Martha Stewart can benefit by buying ironing services even from people who are not as good at ironing as she is. The better Martha Stewart gets at running her business, the greater her cost at ironing because it would take time for her to iron instead of running her business. So, when Martha becomes more productive, this increase her demand to trade

Wealth and Economic Growth are Important

• Wealth in the case of malaria was able to pay for the prevention of malaria

• Wealth comes from economic growth

  • wealth: an abundance of valuable possessions or money

Incentives

• incentives help people work and this benefits the greater good

  • incentives: a thing that motivates or encourages someone to do something