In this course, students learn that economies can experience greater consumption through specialization and trade. However, the price must be right for trade to occur. So, students also ascertain the terms of trade, a condition where trade can only benefit both parties when the price of the good is higher than the exporter’s opportunity cost and lower than the importer’s opportunity cost.
Specifically, Jack and Andy work out the terms of trading potatoes and strawberries between their islands by comparing their opportunity costs of producing those goods.
View all of the Comparative Advantage Short Courses.
