In the previous video, we talked about how economies efficiency produce goods and allocate their resources. This time, we talk about how economies can maximize their consumption and production by specializing and trading!
How is it that 2 individuals or economies can come together and determine a price or exchange rate where goods and services can be trade?
Imagine you have a friend named John and he is great at accounting and you are a master of economics. Which scenario would you prefer:
a) Both you and John never meet for study sessions. You study alone and only meet up for basketball
b) John teaches you accounting and you teach him economics!
I hope that all of you have chosen option B and the rational behind this is that you save a lot of time when there is somebody there to teach you! You have saved on opportunity cost! This little example should give you an idea on how economies come together and make a decision to trade or not.
Watch the video for a more technical explanation!
At the end of the video, you should be able to: