Principles of Macroeconomics :3

1. 3 Interdependence and the Gains from Trade

9. Table 1 The Production Opportunities of the Farmer and Rancher Copyright © 2004 South-Western

11. Figure 1 The Production Possibilities Curve Potatoes (ounces) 0 Meat (ounces) (a) The Farmer ’ s Production Possibilities Frontier Copyright©2003 Southwestern/Thomson Learning 4 16 8 32 A If there is no trade, the farmer chooses this production and consumption.

12. Figure 1 The Production Possibilities Curve Copyright©2003 Southwestern/Thomson Learning Potatoes (ounces) 0 Meat (ounces) (b) The Rancher ’ s Production Possibilities Frontier 12 24 B 48 24 If there is no trade, the rancher chooses this production and consumption.

14. Table 2 The Gains from Trade: A Summary Copyright © 2004 South-Western

15. Figure 2 How Trade Expands the Set of Consumption Opportunities Copyright©2003 Southwestern/Thomson Learning Potatoes (ounces) 0 Meat (ounces) (a) The Farmer ’ s Production and Consumption 4 16 5 17 8 32 A A* Farmer's production and consumption without trade Farmer's consumption with trade Farmer's production with trade

16. Figure 2 How Trade Expands the Set of Consumption Opportunities Copyright © 2004 South-Western Potatoes (ounces) 0 Meat (ounces) (b) The Rancher ’ s Production and Consumption 12 24 13 27 B 48 24 12 18 B* Rancher's consumption with trade Rancher's production with trade Rancher's production and consumption without trade

17. Table 2 The Gains from Trade: A Summary Copyright © 2004 South-Western

24. Table 3 The Opportunity Cost of Meat and Potatoes

26. Comparative Advantage and Trade … so, the Rancher has a comparative advantage in the production of meat but the Farmer has a comparative advantage in the production of potatoes.