Chapter 3: Interdependence & Gains from Trade

This chapter really dove into the concept of comparative advantage, and explained it with a drawn-out example using a farmer and a rancher. Before reading it, I didn't really understand how if someone had an absolute advantage when producing two goods over another person, how they benefited from trade whatsoever. Now I understand that the real cost of an action has more to do with opportunity cost, and since the opportunity cost of producing one good is the inverse of producing another, one person will always have the comparative advantage while producing one good and likewise. It's impossible for someone to have a comparative advantage in both goods. However, it must be noted that for both parties to gain from trade, the price at which they trade must lie between the two opportunity costs. This allows for specialization for people in activities in which they have a comparative advantage in. Question: When international trade is so clearly in the best interest of a country in relation to maximizing efficiency, why do countries so often restrict trade? Question: How can we determine our comparative advantages in a more complex economy (e.g. one that produces more than two goods). Although some concepts took a little bit to sink in, I would rate this chapter 2/3 in terms of difficulty.