Dependence benefit all trading partners gains

1. Exchanges or trades of this sort interact in apparently cooperative ways increase _______.

2. If individuals can freely _______, they can specialize in particular production activities.

3. Individuals sometimes _______ with exchange resources and other individuals even though goods there is no explicit intention to take advantage of the to cooperate.

4. It provides an incentive for individuals _______ among other individuals.

5. It is impossible _______ from specialization without being willing to exchange.

6. Trade between nations will also _______ and will depend upon comparative advantage.

7. Specialization _______ on others for the goods that one might have produced but for which one trades.

IV. Read and translate the text:

An economy exists because there are gains from exchange and from specialization that link individuals together in extraordinarily important ways. There are two kinds of gains.

First, if individuals are free to exchange goods and resources, they can give up those things they value relatively less in exchange for those things that they value relatively more. Exchanges or trades of this sort increase individual well-being.

Second, if individuals can freely exchange resources and goods, they can specialize in particular production activities. Generally, specialization leads to an increase in the production of goods and services even if the resources that an economy has do not change. As a consequence, specialization will also increase individual well-being.

These two ideas, exchange and specialization, are the topics of this chapter. It is simply not possible to understand how possibly a market economy works without a clear understanding of why it is that individuals sometimes interact in apparently cooperative ways with other individuals even though there is no explicit intention to cooperate. But simply, exchange and specialization are the bases of economic activity for any society, although there may be a number of different ways that societies can choose to organize so as to facilitate exchange and specialization.

Individuals are better-off when they have opportunities to trade. While well-being is not always measurable, some of the gains from exchange can be measured; they are not merely subjective. This is important because it provides an incentive for individuals to facilitate the exchanges among other individuals. The more different individual tastes and preferences are, the greater will be the potential gains from exchange between the individuals.

Just because someone's well-being is enhanced by exchange does not imply that another person's well-being is undermined.

Exchange induces individuals to specialize so asto minimize the costs of producing goods.

So long as individuals are different from one another, each will have a comparative advantage relative to some other person in at least one activity.

The gains from exchange and specialization need not be equally divided among those who trade and specialize. Indeed, as relative prices change, the division of the gains will also change. Higher relative prices for the goods you are specialized in producing will increase your share of the gains, while lower relative prices for the same goods will decrease your share.

Specialization implies dependence on others for the goods that one might have produced but for which one trades. In this important sense, specialization and exchange link individuals together creating an economy.

V. Answer the following questions:

1. What is exchange?

2. What is specialization?

3. Why do exchange and specialization increase individual well-being?

4. Are exchange and specialization the bases of economic activity for any society?

5. In what sense does exchange make an economy better-off?

6. What do gains from exchange and specialization depend on?

7. What does specialization imply?

VI. Define the terms:

market economy

better-off

explicit intention

preference

exchange

specialization

incentive

relative prices

VII. Translate into English:

1. Розподіл потенційних прибутків між індивідами залежатиме від угод, які кожен з них зможе укласти. 2. Якщо людині пощастило з угодою, то вона отримає більше прибутків від обміну. 3. Що більше різняться індивідуальні смаки та уподобання, то більшими є потенційні прибутки від обміну між індивідами. 4. Відносна ціна товару визначається як коефіцієнт, за яким один товар обмінюється на інший. 5. Індивіди можуть мати користь від обміну, якщо навіть немає спеціалізації. 6. Якщо індивіди вільні обмінюватися товарами та послугами, то вони можуть також спеціалізуватися з тих видів діяльності, у яких вони мають відносну перевагу. 7. Зиск від обміну та спеціалізації не обов'язково маєрівномірно розподілятися між тими, хто веде торгівлю. 8. У складній економіці загальний обсяг виробництва буде змінюватися зі змінами у відносних цінах.

VIII. Read and dramatize the following dialogue:

A.: We've discussed already exchange and specialization and now let's proceed with relative prices and their role in exchange and specialization.

В.: Surely. Prices are among the most visible characteristics of an economy. What is a relative price by the way?

A.: The relative price of a commodity is defined as the ratio at which one good exchanges for another good. That is, a relative price is the amount of one good an individual must give up if he chooses to consume one unit of another good.

B.: As far as I understood, the relative price of a good is the amount of some other good that must be given up to get an additional amount of the first good.

A.: Yes, sure. For example, if shirts are priced at twenty-four dollars and oranges at two dollars per pound, the relative price of a shirt is twelve pounds of oranges or, conversely, the relative price of a pound of oranges is one-twelfth of a shirt.

B.: Would the relative price be the same if a shirt, for example, costs twenty-four French francs and oranges sell for two francs per pound?

A.: Yes, it would be the same. Relative prices do not depend upon what an economy calls its money or even if it has money. Relative prices depend only upon the willingness of individuals to trade one good for another although money may facilitate these trades.

B.: Are relative prices closely related to opportunity costs?

A.: Indeed, once Crusoe finds that he is not alone on the island, his production costs may be determined by the availability of resources, effort and technology; but his opportunity costs of producing and consuming are determined by the relative price of coco-nuts and palm leaves.

B.: Oh, I remember this story. If I am not wrong, his opportunity costs are determined by the ratio at which palm leaves and coco-nuts exchange when he and Friday trade.

A.: You're quite right. Now I see you caught the main idea concerning relative prices.

B.: I'm very much obliged to you for your explanation.

A.: Not at all.

IX. Make up your own dialogue using the following expressions:

to trade incentive

relative prices well-being

exchange share

advantage gains

to interact to benefit

to enhance

X. Change the following sentences into subordinate clauses by making them depend upon one of the principal clauses given below: they knew; he found out; she was sure; we

decided; it was clear; etc.

Model: These figures will speak for themselves. I was sure that those figures would speak for themselves.

1. Ukraine is developing trade with many European countries. 2. This company will get great gains from selling these goods. 3. The new manager of the plant provided incentives for its workers. 4. They all get equal share in the profits. 5. This contract will benefit both partners.