Ch 3. Interdependence And The Gains From Trade

.title[
# Ch 3. Interdependence And The Gains From Trade
]
.subtitle[
## Microeconomics I
]
.author[
### Lyuben Ivanov, PhD; Georgi Ganev, PhD
]
.institute[
### Sofia University St Kliment Ohridski
]
.date[
### Fall Term 2025/2026
]

---

.pull-right-2[
_Point of view is worth 80 IQ points._
<hr style="background-color: black; margin: 0em 0em 0em 0em;">
<span style="float: right; font-variant: small-caps; "> Alan Kay (1982) </span>
]

---

.pull-right-2[
_mutuality of advantage from voluntary
exchange is. . . the most fundamental of all
understandings in economics_
<hr style="background-color: black; margin: 0em 0em 0em 0em;">
<span style="float: right; font-variant: small-caps; "> James Buchanan (2001) </span>
]

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  A Parable For The Modern<br>&nbsp;Economy</strong>
]
<hr>

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# Why People Trade

.pull-right-2[
_Variety is the very spice of life, <br>That gives it all its flavor._
<hr style="background-color: black; margin: 0em 0em 0em 0em;">
<span style="float: right; font-variant: small-caps; "> William Cowper (1785) </span>
]

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 240px;"><b>Frankie<br>Farmer</b></td>
    <td> </td>
    <td> </td>
    <td>a farmer who can only produce potatoes</td>
  </tr>
</table>
<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 240px;"><b>Ronnie<br>Rancher</b></td>
    <td> </td>
    <td> </td>
    <td>a rancher who can only produce meat</td>
  </tr>
</table>
<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 240px;"><b><br><i class='fa fa-question' style='font-size:48px;>'</b></td>
    <td> </td>
    <td> </td>
    <td><br>Can both Ronnie and Frankie gain by trading with each other?</td>
  </tr>
</table>

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Absolute Advantage</strong>
]
<hr>

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# Why People Trade

.pull-right-2[
_It is a maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy._
<hr style="background-color: black; margin: 0em 0em 0em 0em;">
<span style="float: right; font-variant: small-caps; "> Adam Smith (1776) </span>
]

<br>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>Frankie<br>Farmer</b></td>
    <td> </td>
    <td> </td>
    <td>a farmer who can produce both meat and potatoes</td>
  </tr>
</table>
<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>Ronnie<br>Rancher</b></td>
    <td> </td>
    <td> </td>
    <td>a rancher who can produce meat faster than Frankie but is slower than Frankie in producing potatoes</td>
  </tr>
</table>
<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b><br><i class='fa fa-question' style='font-size:48px;'></b></td>
    <td> </td>
    <td> </td>
    <td>Can both Ronnie and Frankie gain by trading with each other? If yes, who should produce meat and who should produce potatoes?</td>
  </tr>
</table>

---

# A Toy Problem

<table>
<thead><tr>
<th style="border-bottom:hidden;padding-bottom:0; padding-left:3px;padding-right:3px;text-align: center; background-color: rgba(250, 250, 250, 255) !important;" colspan="2"><div style="border-bottom: 1px solid #ddd; padding-bottom: 5px; ">&nbsp;</div></th>
<th style="border-bottom:hidden;padding-bottom:0; padding-left:3px;padding-right:3px;text-align: center; background-color: rgba(250, 250, 250, 255) !important;" colspan="2"><div style="border-bottom: 1px solid #ddd; padding-bottom: 5px; ">Time to make 1 kg</div></th>
<th style="border-bottom:hidden;padding-bottom:0; padding-left:3px;padding-right:3px;text-align: center; background-color: rgba(250, 250, 250, 255) !important;" colspan="1"><div style="border-bottom: 1px solid #ddd; padding-bottom: 5px; ">&nbsp;</div></th>
<th style="border-bottom:hidden;padding-bottom:0; padding-left:3px;padding-right:3px;text-align: center; background-color: rgba(250, 250, 250, 255) !important;" colspan="2"><div style="border-bottom: 1px solid #ddd; padding-bottom: 5px; ">Production per hour</div></th>
</tr></thead>
<tbody>
  <tr>
   <td style="text-align:left;font-weight: bold;background-color: rgba(250, 250, 250, 255) !important;">  </td>
   <td style="text-align:center;font-weight: bold;background-color: rgba(250, 250, 250, 255) !important;">  </td>
   <td style="text-align:center;font-weight: bold;background-color: rgba(250, 250, 250, 255) !important;"> meat </td>
   <td style="text-align:center;font-weight: bold;background-color: rgba(250, 250, 250, 255) !important;"> potatoes </td>
   <td style="text-align:center;font-weight: bold;background-color: rgba(250, 250, 250, 255) !important;">  </td>
   <td style="text-align:center;font-weight: bold;background-color: rgba(250, 250, 250, 255) !important;"> meat </td>
   <td style="text-align:center;font-weight: bold;background-color: rgba(250, 250, 250, 255) !important;"> potatoes </td>
  </tr>
  <tr>
   <td style="text-align:left;background-color: rgba(250, 250, 250, 255) !important;"> Frankie Farmer </td>
   <td style="text-align:center;background-color: rgba(250, 250, 250, 255) !important;">  </td>
   <td style="text-align:center;background-color: rgba(250, 250, 250, 255) !important;"> 30 min </td>
   <td style="text-align:center;background-color: rgba(250, 250, 250, 255) !important;"> 20 min </td>
   <td style="text-align:center;background-color: rgba(250, 250, 250, 255) !important;">  </td>
   <td style="text-align:center;background-color: rgba(250, 250, 250, 255) !important;"> .can-edit[&nbsp;] </td>
   <td style="text-align:center;background-color: rgba(250, 250, 250, 255) !important;"> .can-edit[&nbsp;] </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Ronnie Rancher </td>
   <td style="text-align:center;">  </td>
   <td style="text-align:center;"> 20 min </td>
   <td style="text-align:center;"> 30 min </td>
   <td style="text-align:center;">  </td>
   <td style="text-align:center;"> .can-edit[&nbsp;] </td>
   <td style="text-align:center;"> .can-edit[&nbsp;] </td>
  </tr>
</tbody>
</table>
]

</div>

<br>

<table>
<thead><tr>
<th style="border-bottom:hidden;padding-bottom:0; padding-left:3px;padding-right:3px;text-align: center; background-color: rgba(250, 250, 250, 255) !important;" colspan="2"><div style="border-bottom: 1px solid #ddd; padding-bottom: 5px; ">&nbsp;</div></th>
<th style="border-bottom:hidden;padding-bottom:0; padding-left:3px;padding-right:3px;text-align: center; background-color: rgba(250, 250, 250, 255) !important;" colspan="2"><div style="border-bottom: 1px solid #ddd; padding-bottom: 5px; ">Production per hour</div></th>
<th style="border-bottom:hidden;padding-bottom:0; padding-left:3px;padding-right:3px;text-align: center; background-color: rgba(250, 250, 250, 255) !important;" colspan="1"><div style="border-bottom: 1px solid #ddd; padding-bottom: 5px; ">&nbsp;</div></th>
<th style="border-bottom:hidden;padding-bottom:0; padding-left:3px;padding-right:3px;text-align: center; background-color: rgba(250, 250, 250, 255) !important;" colspan="2"><div style="border-bottom: 1px solid #ddd; padding-bottom: 5px; ">Production in 8 hours</div></th>
</tr></thead>
<tbody>
  <tr>
   <td style="text-align:left;font-weight: bold;background-color: rgba(250, 250, 250, 255) !important;">  </td>
   <td style="text-align:center;font-weight: bold;background-color: rgba(250, 250, 250, 255) !important;">  </td>
   <td style="text-align:center;font-weight: bold;background-color: rgba(250, 250, 250, 255) !important;"> meat </td>
   <td style="text-align:center;font-weight: bold;background-color: rgba(250, 250, 250, 255) !important;"> potatoes </td>
   <td style="text-align:center;font-weight: bold;background-color: rgba(250, 250, 250, 255) !important;">  </td>
   <td style="text-align:center;font-weight: bold;background-color: rgba(250, 250, 250, 255) !important;"> meat </td>
   <td style="text-align:center;font-weight: bold;background-color: rgba(250, 250, 250, 255) !important;"> potatoes </td>
  </tr>
  <tr>
   <td style="text-align:left;background-color: rgba(250, 250, 250, 255) !important;"> Frankie Farmer </td>
   <td style="text-align:center;background-color: rgba(250, 250, 250, 255) !important;">  </td>
   <td style="text-align:center;background-color: rgba(250, 250, 250, 255) !important;"> 2 </td>
   <td style="text-align:center;background-color: rgba(250, 250, 250, 255) !important;"> 3 </td>
   <td style="text-align:center;background-color: rgba(250, 250, 250, 255) !important;">  </td>
   <td style="text-align:center;background-color: rgba(250, 250, 250, 255) !important;"> .can-edit[&nbsp;] </td>
   <td style="text-align:center;background-color: rgba(250, 250, 250, 255) !important;"> .can-edit[&nbsp;] </td>
  </tr>
  <tr>
   <td style="text-align:left;"> Ronnie Rancher </td>
   <td style="text-align:center;">  </td>
   <td style="text-align:center;"> 3 </td>
   <td style="text-align:center;"> 2 </td>
   <td style="text-align:center;">  </td>
   <td style="text-align:center;"> .can-edit[&nbsp;] </td>
   <td style="text-align:center;"> .can-edit[&nbsp;] </td>
  </tr>
</tbody>
</table>
]

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  .font200[
<strong>  Case Study:<br>&nbsp;Trade And Wealth</strong>
]
<hr>

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  .font200[
<strong>  Famous Last Words</strong>
]
<hr>

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.pull-right-2[
_Ultimately, the economic analysis of the
possibilities for mutually beneficial exchange
and enrichment based on specialization
according to the comparative advantages of
market participants leads to one main
conclusion – the diversity of people, their
diﬀerences, their particularities and even
oddities, are actually opportunities for
enrichment_
<hr style="background-color: black; margin: 0em 0em 0em 0em;">
<span style="float: right; font-variant: small-caps; "> Georgy Ganev </span>
]

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.pull-right-2[
_The conclusion about the diversity and
diﬀerences among humans as an
opportunity rather than a danger for human
societies is another major distinction of
economics from other social sciences_
<hr style="background-color: black; margin: 0em 0em 0em 0em;">
<span style="float: right; font-variant: small-caps; "> Georgy Ganev </span>
]

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# Questions?

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# Thank You!

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