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Econ: What are Gains From Trade? 4 Views


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What are Gains From Trade? Gains from Trade is the term used to describe the benefits derived from two parties engaging in trade. The gains include gross supply of resources, accumulation or supplies where one party has excess while another has shortages; specialization of labor, pooling of intellectual resources and expertise, etc.

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Transcript

00:00

And finance Allah shmoop what our gains from trade Ah

00:09

the nineteen fifties hoop skirts do up big cars malt

00:13

shops Elvis in a near world economic domination by the

00:18

U S What was that last one Yeah well during

00:22

World War two pretty much all the world bombed itself

00:24

back into the Stone Age Well except for the U

00:26

S Which well nobody could reach with any bombers except

00:30

for Hawaii And well that was just that one time

00:32

you know Well besides just not getting bombed the U

00:34

S Had spent the war ramping up manufacturing production I

00:38

am making tanks and guns and other fun stuff So

00:41

after the war the US had all this capacity Teo

00:44

you know make stuff And in the rest of the

00:46

world well they had all this need for that stuff

00:50

and not much production capacity and well no capital and

00:53

well pretty much no buildings Yeah well time for some

00:55

international trade So the U S wouldn't make products and

00:59

send them around the world And if places couldn't afford

01:01

to buy those products well we just lend them money

01:04

and they become bankers to the world while we're at

01:07

it And then Well then they'd be kind of forced

01:09

to buy stuff with us for a long long time

01:11

till they get pay off those debts and they never

01:12

did So they keep buying Who's good time for us

01:15

business especially manufacturing You remember the guys the man in

01:19

the gray flannel suit That novel Yeah they had fedoras

01:22

and well they basically ran the world So that's an

01:25

obvious example of the gains from trade that we made

01:28

bombed out Europe benefited because it got much needed supplies

01:31

And the US benefited because well people had jobs and

01:34

could afford Jello with their TV dinners What when parties

01:37

are allowed to voluntarily trade with each other with low

01:40

friction while things usually get better for both sides That's

01:44

called gains from trade in the friction yet taxes and

01:47

transaction costs We don't want those So let's say you

01:50

have an island with two countries Yola India and Cool

01:53

Ooh Vania All right well the people of your land

01:55

eah are masters of the string arts and they could

01:58

make high quality Yo yo's fast inefficiently Meanwhile the people

02:01

of Hu Lu Vania have a knack for making circular

02:05

things like they make great loops Well if yo landers

02:08

have to make their own hula hoops It takes them

02:10

a long time Also takes the time away from their

02:13

true love which is making yo yo's So in a

02:15

typical week the old Landers can make a thousand yo

02:18

goes and five hundred hoops splitting their time evenly But

02:21

on the other side of the island the hula vain

02:23

Ian's can make three hundred yo goes and eight hundred

02:25

hula hoops splitting their time evenly between the two different

02:29

numbers there Yeah but what if they traded That is

02:32

what if the old landers on Lee made yo yo's

02:35

and the Who Louvain Ian's only made who loops Well

02:37

then the two countries could just trade with each other

02:39

and optimize their production efforts Right We'll dedicating their time

02:42

completely to making yo yo's The old landers can make

02:46

two thousand Yo yo's in that same time period and

02:48

full time Hula hoop making for the hula vain Ian's

02:51

while that leads to sixteen hundred loops So let's compare

02:54

that dynamic to the previous output Well before the old

02:57

Landers made a thousand yo goes and the hula vain

02:59

Ian's made three hundred yo yos and thirteen hundred yellow's

03:01

total And before the yield Landers made five hundred Who

03:04

loops And the Hula Vain Ian's made eight hundred Who

03:06

loops And that's thirteen hundred hula hoops total But after

03:09

the two gods started trading with each other well we've

03:12

got two thousand total Yo yo's and sixteen hundred Hula

03:15

hoops Production is generally up all things to the two

03:18

sides getting too focused on producing their specialty and note

03:22

There's no taxes and commissions and other stuff to cloud

03:25

the numbers here for you like there is in real

03:26

life Well when countries specialized they're able to become more

03:29

efficient They end up making their product cheaper by getting

03:32

better at making it Then other countries could write like

03:36

Think about how awesome watches are from Switzerland They've had

03:39

like four hundred years to perfect the art kind of

03:41

like semi conductors in Silicon Valley Well it all depends

03:44

on the country's conditions like countries by the ocean Well

03:47

produce or gather seafood right countries with good farmland produce

03:52

awesome corn and greens and stuff Countries with mountains produce

03:56

quell postcards While these conditions specialization a natural advantage lead

04:02

to a concept called comparative advantage Each country does what

04:06

it does best costs for everybody go down well Countries

04:10

end up specialising in particular production like Yolanda and Lulu

04:14

Vania Rather than creating a little of everything they specialize

04:17

and they make a surplus of the things they're good

04:19

at making Well They then export these surpluses to the

04:22

rest of the world With the money they get from

04:24

those exports they could afford to import other products right

04:27

The stuff they didn't produce themselves well These imports are

04:30

relatively cheap because they're being produced in countries that use

04:34

their comparative advantage to produce them at a lower cost

04:37

than they could generally be produced elsewhere Well everyone ends

04:40

up with Mohr of everything And as you know Mohr

04:43

is better We'll think about the good people of your

04:45

clammy and hula Vania Obviously they can't eat yo yo's

04:49

and hula hoops but their lousy farmers and their terrible

04:52

fishermen All they want to do is make Yo yo's

04:54

and or hula Hoop right So gains from trade allow

04:56

them to just do that The two thousand year Agos

04:58

and the sixteen hundred Hula hoops the two of them

05:01

make can get shipped to other countries They can use

05:04

the cash earned to bring in food from the U

05:06

S and cars from Japan and TVs from Korea You

05:10

know anything they want Well those air the short term

05:12

gains from trade Basically it's all about making money You're

05:15

making the most amount of money that you can buy

05:17

specializing But there are some long term gains from trade

05:20

to gains that can't necessarily be measured in bean counting

05:24

or tracking nickels and dimes Kuwait is a small country

05:27

in the Middle East The country doesn't have a lot

05:29

to do with the United States While circa nineteen ninety

05:32

most Americans had no idea that Kuwait even existed But

05:36

Kuwait produced a lot of oil oil Americans used Kuwait

05:40

had a strong trade relationship with us in oil well

05:44

In nineteen ninety Kuwait was invaded by the kindly loving

05:47

generals from Iraq Well rather than just shrug its shoulders

05:51

the U S launched its biggest military effort since Vietnam

05:54

in order to kick Iraq out and restore Kuwait as

05:57

a sovereign nation We'll compare that to what happened Teo

06:00

George Shit Different Georgia In two thousand eight Russia invaded

06:04

the country Did the U S Mount a major military

06:06

effort to save the tiny nation from a Russian invasion

06:10

No why Well Georgia's major exports included hazelnuts and wine

06:15

Yeah doesn't quite get the martial spirit pumping quite like

06:18

crude oil does because Kuwait had a strong trading relationship

06:21

with the US providing a vital commodity that we all

06:24

care about while the U S Was willing to step

06:26

in and protect Kuwait and risk American lives when it

06:29

was invaded While building trade relationships can be like buying

06:32

a friend in the doggy dog world of international relationships

06:36

if Kuwait had just tried to keep itself and not

06:39

sell oil to the U S well it wouldn't have

06:42

been able to talk us into protecting it in its

06:44

big time of need there But let's be really It's

06:47

mostly about money and the stuff money can buy gains

06:50

from trade lead all sorts of material benefits Think about

06:53

your own life because well there are farmers out there

06:55

who grow food and raise animals And because there are

06:58

manufacturers out there who assemble hot pockets and because you're

07:01

able specialize while you have time to get really good

07:04

at playing fortnight So these guys they're good at farming

07:08

and making greasy handheld food products You get great at

07:11

video games Nice trade The farmer in the worker can

07:13

then watch your twitch channel when they get home Yeah

07:16

everyone benefits eventually That's what happened in the post nineteen

07:20

fifties America Instead of making everything other countries finally rebuilt

07:24

themselves after well their destruction in World War two So

07:27

the U S could import better cheaper cars from Japan

07:30

and Korea and elsewhere Cheaper electronics from Taiwan and China

07:34

and other places Cheaper clothes from places like the Philippines

07:37

Latin America cheaper customer service Call talkers from India Better

07:41

music from Britain better actors from Australia So next time

07:45

you watch Hugh Jackman in a movie that has Beatle

07:47

songs on the soundtrack while enjoying it on a big

07:50

screen TV from Korea sitting on a couch made in

07:52

Mexico wearing a full length body snugly made in the 00:07:56.298 --> [endTime] Philippines Well you can think games from trade here

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