{"id":261,"date":"2016-08-28T01:51:12","date_gmt":"2016-08-28T05:51:12","guid":{"rendered":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/?post_type=chapter&#038;p=261"},"modified":"2017-05-15T17:16:31","modified_gmt":"2017-05-15T21:16:31","slug":"introduction-to-specialization-trade","status":"publish","type":"chapter","link":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/chapter\/introduction-to-specialization-trade\/","title":{"raw":"Introduction to Specialization &amp; Trade","rendered":"Introduction to Specialization &amp; Trade"},"content":{"raw":"<div class=\"bcc-box bcc-highlight\">\r\n<h3 itemprop=\"educationalUse\">Topic Objectives<\/h3>\r\n<strong>Topic 2: Specialization &amp;\u00a0Trade<\/strong>\r\n<p id=\"fs-idp35025760\">In this topic, you will learn about:<\/p>\r\n\r\n<ul id=\"fs-idp75038080\">\r\n \t<li>Economic Efficiency<\/li>\r\n \t<li>Opportunity Cost and how it\u00a0influences decisions<\/li>\r\n \t<li>The Production Possibility Frontier<\/li>\r\n \t<li>Absolute and Comparative advantages<\/li>\r\n<\/ul>\r\nThe topic\u00a0will help you develop the following skills:\r\n<ul>\r\n \t<li>Develop a sense of the normative approach used in economics<\/li>\r\n \t<li>Practice simple model building<\/li>\r\n \t<li>Understanding the benefits from trade<\/li>\r\n<\/ul>\r\n<\/div>\r\n&nbsp;\r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"780\"]<a href=\"http:\/\/www.economist.com\/blogs\/dailychart\/2011\/08\/apple-and-samsungs-symbiotic-relationship\"><img src=\"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-content\/uploads\/sites\/58\/2016\/08\/CNX_Econ_C33_000.jpg\" alt=\"The image is a photograph of the iPhone's home screen.\" width=\"780\" height=\"470\" \/><\/a> <strong>Figure 1.<\/strong> Apple or Samsung iPhone? Though\u00a0the iPhone is widely\u00a0recognized as an Apple product, 26% of the phone's parts are supplied\u00a0\u00a0by rival phone-maker, Samsung. In international trade, there are often \u201cconflicts\u201d like this as each party specializes on what it does best. (Credit: modification of work by Yutaka Tsutano Creative Commons)[\/caption]\r\n\r\n<div id=\"fs-idm124714608\" class=\"textbox shaded\">\r\n<h3>Just Whose iPhone Is It?<\/h3>\r\n<p style=\"margin-top: 0cm;background: #EEEEEE\"><span style=\"font-family: Georgia;color: #333333\">The iPhone is a global product. Apple neither manufactures iPhone components nor assembles them. Actually, Foxconn Corporation, a Taiwanese company, assembles iPhones at its factory in Shenzhen, China. In addition, Samsung supplies about 26% of the parts that make up the iPhone. In short, oddly enough, Samsung is both Apple\u2019s biggest supplier and main competitor. Why do these two firms work together to produce the iPhone? To understand the economic logic behind trade, one must accept that the exchange of goods and services is done in a mutually beneficial manner. Samsung is one of the world\u2019s largest electronics parts suppliers. Samsung can make high profits\u00a0focusing on making the phone\u2019s parts, while Apple concentrates on its strength\u2014designing elegant, easy-to-use products. If each group focuses on what it does best, both parties benefit from trade.<\/span><\/p>\r\n\r\n<h3><a href=\"http:\/\/www.economist.com\/blogs\/dailychart\/2011\/08\/apple-and-samsungs-symbiotic-relationship\"><img src=\"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-content\/uploads\/sites\/58\/2016\/08\/qrcode.36452544.png\" alt=\"qrcode.36452544\" width=\"159\" height=\"159\" class=\"wp-image-432 aligncenter\" \/><\/a><\/h3>\r\n<h4 style=\"text-align: center\"><a href=\"http:\/\/www.economist.com\/blogs\/dailychart\/2011\/08\/apple-and-samsungs-symbiotic-relationship\">\u00a0Click to Learn More<\/a><\/h4>\r\n<\/div>\r\nWe live in a global marketplace. The food in your kitchen might include fresh fruit from Chile, cheese from France, and bottled water from Scotland. Your wireless phone may have been manufactured in Taiwan or Korea. Your clothes are possibly designed in Italy and manufactured in China. As a worker, if your job involves farming, machinery, airplanes, cars, or scientific instruments, the odds are high that a hearty proportion of your company\u2019s sales\u2014and hence the money that pays your salary\u2014comes from export sales. We are all linked by international trade, which has grown dramatically in the last few decades and plays an increasingly important role in the global economy.\r\n\r\nRecall that\u00a0<strong>Macroeconomics\u00a0<\/strong>is the study of how the aggregate economy behaves. Though trade can often be a Marco issue (examining exchange rates, interest rates, trade agreements etc.), it is fundamentally rooted in Microeconomics.\u00a0<strong>Resource allocation<\/strong>\u00a0is the decisions individuals, businesses, and governments make with scarce resources. In the example above, both Taiwan and China decide what amounts of phones and microchips they would each like to produce. Though this interplay between micro- and macroeconomics is complicated, there are fundamentally three resources allocation questions at the core of microeconomics:\r\n<ol>\r\n \t<li>What goods and services should a society produce, given its scarce resources?<\/li>\r\n \t<li>How should the production of these goods and services take place?<\/li>\r\n \t<li>Who should consume these goods and services?<\/li>\r\n<\/ol>\r\nThese questions are all\u00a0<strong>normative<\/strong>, meaning they are subjective and value-based as opposed to\u00a0<strong>positive<\/strong>, fact-based questions. We need normative criteria to evaluate these questions \u2013 an idea that will be developed later in this chapter.\r\n\r\nIn this topic, we will focus on answering the second question \"how should the production of these goods and services take place,\" as we evaluate how countries can gain from trade and allocate resources most efficiently.","rendered":"<div class=\"bcc-box bcc-highlight\">\n<h3 itemprop=\"educationalUse\">Topic Objectives<\/h3>\n<p><strong>Topic 2: Specialization &amp;\u00a0Trade<\/strong><\/p>\n<p id=\"fs-idp35025760\">In this topic, you will learn about:<\/p>\n<ul id=\"fs-idp75038080\">\n<li>Economic Efficiency<\/li>\n<li>Opportunity Cost and how it\u00a0influences decisions<\/li>\n<li>The Production Possibility Frontier<\/li>\n<li>Absolute and Comparative advantages<\/li>\n<\/ul>\n<p>The topic\u00a0will help you develop the following skills:<\/p>\n<ul>\n<li>Develop a sense of the normative approach used in economics<\/li>\n<li>Practice simple model building<\/li>\n<li>Understanding the benefits from trade<\/li>\n<\/ul>\n<\/div>\n<p>&nbsp;<\/p>\n<figure style=\"width: 780px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/www.economist.com\/blogs\/dailychart\/2011\/08\/apple-and-samsungs-symbiotic-relationship\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-content\/uploads\/sites\/58\/2016\/08\/CNX_Econ_C33_000.jpg\" alt=\"The image is a photograph of the iPhone's home screen.\" width=\"780\" height=\"470\" \/><\/a><figcaption class=\"wp-caption-text\"><strong>Figure 1.<\/strong> Apple or Samsung iPhone? Though\u00a0the iPhone is widely\u00a0recognized as an Apple product, 26% of the phone&#8217;s parts are supplied\u00a0\u00a0by rival phone-maker, Samsung. In international trade, there are often \u201cconflicts\u201d like this as each party specializes on what it does best. (Credit: modification of work by Yutaka Tsutano Creative Commons)<\/figcaption><\/figure>\n<div id=\"fs-idm124714608\" class=\"textbox shaded\">\n<h3>Just Whose iPhone Is It?<\/h3>\n<p style=\"margin-top: 0cm;background: #EEEEEE\"><span style=\"font-family: Georgia;color: #333333\">The iPhone is a global product. Apple neither manufactures iPhone components nor assembles them. Actually, Foxconn Corporation, a Taiwanese company, assembles iPhones at its factory in Shenzhen, China. In addition, Samsung supplies about 26% of the parts that make up the iPhone. In short, oddly enough, Samsung is both Apple\u2019s biggest supplier and main competitor. Why do these two firms work together to produce the iPhone? To understand the economic logic behind trade, one must accept that the exchange of goods and services is done in a mutually beneficial manner. Samsung is one of the world\u2019s largest electronics parts suppliers. Samsung can make high profits\u00a0focusing on making the phone\u2019s parts, while Apple concentrates on its strength\u2014designing elegant, easy-to-use products. If each group focuses on what it does best, both parties benefit from trade.<\/span><\/p>\n<h3><a href=\"http:\/\/www.economist.com\/blogs\/dailychart\/2011\/08\/apple-and-samsungs-symbiotic-relationship\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-content\/uploads\/sites\/58\/2016\/08\/qrcode.36452544.png\" alt=\"qrcode.36452544\" width=\"159\" height=\"159\" class=\"wp-image-432 aligncenter\" srcset=\"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-content\/uploads\/sites\/58\/2016\/08\/qrcode.36452544.png 200w, https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-content\/uploads\/sites\/58\/2016\/08\/qrcode.36452544-150x150.png 150w, https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-content\/uploads\/sites\/58\/2016\/08\/qrcode.36452544-65x65.png 65w\" sizes=\"auto, (max-width: 159px) 100vw, 159px\" \/><\/a><\/h3>\n<h4 style=\"text-align: center\"><a href=\"http:\/\/www.economist.com\/blogs\/dailychart\/2011\/08\/apple-and-samsungs-symbiotic-relationship\">\u00a0Click to Learn More<\/a><\/h4>\n<\/div>\n<p>We live in a global marketplace. The food in your kitchen might include fresh fruit from Chile, cheese from France, and bottled water from Scotland. Your wireless phone may have been manufactured in Taiwan or Korea. Your clothes are possibly designed in Italy and manufactured in China. As a worker, if your job involves farming, machinery, airplanes, cars, or scientific instruments, the odds are high that a hearty proportion of your company\u2019s sales\u2014and hence the money that pays your salary\u2014comes from export sales. We are all linked by international trade, which has grown dramatically in the last few decades and plays an increasingly important role in the global economy.<\/p>\n<p>Recall that\u00a0<strong>Macroeconomics\u00a0<\/strong>is the study of how the aggregate economy behaves. Though trade can often be a Marco issue (examining exchange rates, interest rates, trade agreements etc.), it is fundamentally rooted in Microeconomics.\u00a0<strong>Resource allocation<\/strong>\u00a0is the decisions individuals, businesses, and governments make with scarce resources. In the example above, both Taiwan and China decide what amounts of phones and microchips they would each like to produce. Though this interplay between micro- and macroeconomics is complicated, there are fundamentally three resources allocation questions at the core of microeconomics:<\/p>\n<ol>\n<li>What goods and services should a society produce, given its scarce resources?<\/li>\n<li>How should the production of these goods and services take place?<\/li>\n<li>Who should consume these goods and services?<\/li>\n<\/ol>\n<p>These questions are all\u00a0<strong>normative<\/strong>, meaning they are subjective and value-based as opposed to\u00a0<strong>positive<\/strong>, fact-based questions. We need normative criteria to evaluate these questions \u2013 an idea that will be developed later in this chapter.<\/p>\n<p>In this topic, we will focus on answering the second question &#8220;how should the production of these goods and services take place,&#8221; as we evaluate how countries can gain from trade and allocate resources most efficiently.<\/p>\n","protected":false},"author":58,"menu_order":1,"comment_status":"closed","ping_status":"closed","template":"","meta":{"pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-261","chapter","type-chapter","status-publish","hentry"],"part":25,"_links":{"self":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters\/261","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/users\/58"}],"replies":[{"embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/comments?post=261"}],"version-history":[{"count":24,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters\/261\/revisions"}],"predecessor-version":[{"id":436,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters\/261\/revisions\/436"}],"part":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/parts\/25"}],"metadata":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters\/261\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/media?parent=261"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapter-type?post=261"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/contributor?post=261"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/license?post=261"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}