Chat with AI
Economics 15th Edition by James Gwartney,Richard Stroup,Russell Sobel,David Macpherson
Edition 15ISBN: 978-1285453538Economics 15th Edition by James Gwartney,Richard Stroup,Russell Sobel,David Macpherson
Edition 15ISBN: 978-1285453538 Exercise 1
Why is exchange important to a nation's prosperity? How does trade influence the quantity of output that trading partners are able to produce? In a market economy, will there be a tendency for both resources and products to be supplied by low-cost producers? Why or why not? Does this matter? Explain.
Explanation
Verified
Verified
Exchange and its very essence of welfare gain nests in the fact that it helps in redistribution of goods and commodities to those who values it the most. Through exchange and voluntary transaction mutual gains are realized by optimum allocation of scarce resources. Exchange is thus important to a nation's prosperity since it leads to optimum allocation of output and increase in production through specialization. When nations engage in exchange through trade each nation specializes in the production of the goods it can produce at least opportunity cost. Hence, division and specialization of labor leads to increase in total output, expansion of market, decrease in cost and technological innovation in production process. In the process of trade income generated by one entrepreneur creates multiplied effects. The total wealth of the economy increases and the wealth of the buyers and sellers of the goods also increase.
Trade influence the quality of output that trading partner are able to produce in a positive manner. When goods are produced through division and specialization of labor technological innovation takes place. When each country produces the goods it can produce at lower opportunity cost the quality of the product increases through technological innovation due to specialization.
A market economy ensures optimum and efficient allocation of resources and this is made feasible when resources and product are produced by low cost producers. In other words, they have lowest opportunity cost. In order to understand this better let us assume a cardiologist doctor who does heart surgery has an opportunity cost of $200 per hour and an ECG technician who conducts tests have a opportunity cost of $50 per hour. When the hospital who is a producer of health care do not employ an ECG technician and asks the cardiologist to do the tests when needed, it will cost the hospital an additional $150 per hour. Thus the producer needs to employ the least costly resource. Similarly the cardiologist working as a technician would forgo the income of $150 which he otherwise would have earned.
Trade influence the quality of output that trading partner are able to produce in a positive manner. When goods are produced through division and specialization of labor technological innovation takes place. When each country produces the goods it can produce at lower opportunity cost the quality of the product increases through technological innovation due to specialization.
A market economy ensures optimum and efficient allocation of resources and this is made feasible when resources and product are produced by low cost producers. In other words, they have lowest opportunity cost. In order to understand this better let us assume a cardiologist doctor who does heart surgery has an opportunity cost of $200 per hour and an ECG technician who conducts tests have a opportunity cost of $50 per hour. When the hospital who is a producer of health care do not employ an ECG technician and asks the cardiologist to do the tests when needed, it will cost the hospital an additional $150 per hour. Thus the producer needs to employ the least costly resource. Similarly the cardiologist working as a technician would forgo the income of $150 which he otherwise would have earned.
Economics 15th Edition by James Gwartney,Richard Stroup,Russell Sobel,David Macpherson
Why don’t you like this exercise?
Other Minimum 8 character and maximum 255 character
Character 255
