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Does trade create wealth even if we concerned hi-tech kinds of thing, like producing computers, producing cell-phones, producing mobile technology. Let's consider an example. Fritz and Lou work for pea computers and pea computers has a flag-ship product: the pPod. The pPod is a revolutionary product. And Fritz and Lou can do one of two things: They can either design apps for the pPod or they can assemble pPods. Fritz can design a 1,000 apps in a year or he can assemble 200,000 pPods. Lou on the other hand can only design one app per year or he can assemble 100,000 pPods. The question now is what this Fritz have to gain by cooperationg with Lou. What this Lou have to gain by cooperating with Fritz. First, what's the sum of they each spend exactly half of their time designing apps and assembling pPods. Fritz designes 500 apps and assebles 100,000 pPods in a year. Lou designes half an app and assebmles 50,000 pPods in a year. In total, we as a society, we as a world, get 500.5 apps and 150,000 assebled pPods. Lou comes along and makes proposal. He suggests to Fritz: why don't you specialize in apps and I specialize in pPods assembling. Spend 3/4 of your time designing apps for the pPods and spend 1/4 of your time assembling pPods. I will design no apps for the pPod and I'll assable 100,000 pPods every year. Now let's see what's happens to total output. When they were both splitting their time evenly, they were getting 500.5 apps and assembling 150,000 pPods, Now Fritz is designing 750 apps and assambling 50,000 pPods. Lou is designing no apps and assambling 100,000 pPods. Total output is 750 apps and 150,000 pPods assembled. We as a society are richer by 249.5 apps, that we didn't have before. Trade is a positive sum game, meaning that when people can trade, they can produce more stuff than they would be able to if they didn't trade.

Video Details

Duration: 2 minutes and 43 seconds
Country: United States
Language: English
Producer: LearnLiberty
Director: LearnLiberty
Views: 81
Posted by: smtex on Jul 30, 2011

Prof. Art Carden examines how trade creates wealth, by allowing people working together to produce more than they could individually. Using a simple two-person example, he shows another example of how cooperation during production benefits everyone. Part 2 of 3.

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