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We know that trade creates wealth. Trade allow us to produce more stuff with a given quantity of resources. Also trade conserves wealth. If we wanna produce a given quantity of output, we can produce it using fewer inputs, using fewer resources, if we have an opportunity to trade. Consider Fritz and Lou. Fritz and Lou can grow wheat and they can grow corn. They need certain amount of wheat and certain amount of corn to feed their families. Fritz can produce 1,000 bushels of wheat per acre or 500 bushels of corn per acre. Lou can produce 500 bushels of wheat or 1,000 bushels of corn per acre. Fritz and Lou can produce wheat and corn under two different sets of circumstances. They can produce in autarky, which means that they don't trade which each other. In autarky Fritz is gonna need one acre to produce 1,000 bushels of wheat and two acres to produce 1,000 bushels of corn. Lou is going to need two acres on which to produce 1,000 bushels of wheat and one acre on which to produce 1,000 bushels of corn. In total, they're gonna use 6 acres of land to produce that wheat and corn to feed their families. There is a second scenario: they could trade. Now let's see what happens if Fritz specializes completely in wheat and Lou specialize completely in corn. In this case, Fritz produces 2,000 bushels of wheat on two acres. And Lou produces 2,000 bushels of corn on two acres. Let's suppose that they trade. Fritz trades a 1,000 bushels of wheat for a 1,000 bushels of corn. Now they each have 1,000 bushels of wheat and 1,000 bushels of corn, that they need to feed their families. But they only used four acres to produce it rather than six. They have saved two acres of land. They have saved resources, that can be used to produce parks, that can be used to anything. They've saved resources, they've conserved wealth, solely through the opportunity to trade.

Video Details

Duration: 2 minutes and 18 seconds
Country: United States
Language: English
Producer: LearnLiberty
Director: LearnLiberty
Views: 85
Posted by: smtex on Jul 30, 2011

Prof. Art Carden explains how trade not only creates wealth, but conserves both wealth and resources. When people have access to trade, they can produce the things they make efficiently, and then trade for the things they can't produce as efficiently. This means they are able to meet their needs while consuming fewer resources. Part 3 of 3 in the "Trade is Made of Win" series.

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