Terms of Trade and the Gains from Trade | AP Macroeconomics | Khan Academy

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In this video, we explore how we can use opportunity costs to determine who has comparative advantage in producing a good. By specializing in the production of a good that a country has comparative advantage in, and trading for the other good, both countries have the potential to benefit from the exchange. We can also figure out a trading price (also known as the "terms of trade") which would make both countries willing to trade.
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AP Macroeconomics on Khan Academy: Welcome to Economics! In this lesson we'll define Economic and introduce some of the fundamental tools and perspectives economists use to understand the world around us!
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Опубликовано:

19 ноя 2017

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Комментарии : 47

@SirValiantIII 5 лет назад

Best explanation I've found so far. Especially considering my teacher refused to meet with me to help me with terms of trade

@bahadireneser2924 3 года назад

Still has the most sleek and comprehensive explanation, much appreciated !!!

@FarCritical 4 года назад

The pricing for the trade part really helped me out

@lwayiphiottet5317 2 года назад

Thank you for your explanation of Gain from trade. Excellent explanation Mr.

@ankushmaurya7357 6 месяцев назад

I'm from India.. Best explanation sir 👍

@critch7514 10 месяцев назад

I've been floundering in my econ class, this helps a lot

@sumeenhamid9111 5 лет назад

Very informative!

@Diyaz86 2 года назад

Perfect explanation!

@mili1621 4 года назад

i really enjoyed and learned while entertaining

@mehmetaydin3103 4 года назад

Best ever thank you Khan man

@xchen86 4 года назад

I was really confusing before I watch this. Thank you!!

@Ratigan2 3 года назад

I was confusion two!

@rudraguha4618 3 года назад

great video!

@jansasha2628 6 лет назад

Beautiful

@mcan543 5 лет назад

This is why the modern economies promotes specialization.

@iezioaudi22 5 месяцев назад

What a brilliant explaination!!!!

@anjalitejwani Год назад

most underrated teacher

@sagarnandi6276 5 лет назад

Thank you so much. Take my gratitude sir🙂

@Kajneww 5 месяцев назад

THX for it

@informalaccount.957 3 года назад

thanks

@saitamasan9495 2 года назад

Whats the competitive gain for country B

@erictevoedjre3966 4 года назад

Can we define Opportunity Cost by saying that it is "The forgone option divided by the chosen option"?

@gayansapuge4008 4 года назад

Of course you can.It's the way I would explain this to someone.

@mackenziephillips5132 3 года назад

How did you get the number 15 or did you just make it up?

@mehulgrover1871 3 года назад

He just made an assumption that he will sacrifice 15 units of pants and keep 5 with itself so he gets 15 shirts in return from the other country

@Fiddydoo 4 года назад

How do you know the best price between 0.5 shirts and 1.5 shirts?

@ThePie_NedGreen 4 года назад

plus them together and divide it by 2.

@user-kv2sy7qe5w 4 года назад

Errrr... in the video, it said the best price 'could be' 1. And usually, in my study, the exam paper will provide us with the condition, like if country A (the pants-producing country) exports 5 units of pants in exchange for 5 shirts...the terms of trade will then be 1S/1P(apply different units according to the question) And in fact, the terms of trade will lay between 0.5S and 1.5S, as mentioned in the video

@metal3543 2 года назад

There is no "best price" between 0.5 shirts and 1.5 shirts. Any price within that range is mutually beneficial to both countries. The speaker picked 1 because it is easier to work with than a non-integer amount.

@nurtaymergaliyev5864 10 месяцев назад

Were you studying this in university ? if yes, what course@@user-kv2sy7qe5w

@moniqued5517 6 лет назад

Why didn't we find the price to sell shirts? Is it because the opportunity cost is higher than for pants?

@crazytuber008 3 года назад

We just took one case here. You can find out for pants in a similar manner.

@jasonmason6910 4 года назад

How is 2/3p bigger than 2p? Doesnt 2/3= 0.66 p

@dadyasuo8151 3 года назад

it is less than 2p and that's why B has the comparative advantage. B's opportunity cost for a shirt is 2/3 of a pair of pants while A has to give up 2 pants to make the same shirt. So B has the advantage in making shirts because it costs less for them.

@bradendredge6809 3 года назад

Notes

@bradendredge6809 3 года назад

I was a little bit confused with the math at the end at first, but then I realized that the 15 for 15 was the deal they made, since it allows for a trade rate between each's opportunity costs for a shirt each pair of pants bought/sold. This is awesome!

@stewartbrands 2 года назад

Is this not simplistic enough to be inapplicable in real terms? That is are not marketing(salesmanship) ,style and quality not overriding factors which would push this quantification to the sidelines? Marketing alone would nullify these balancing factors would it not? Is there not a a plethora of real world examples for this? Even the simple choice of a catchy name has shown to affect market share.

@shammaalali352 3 года назад

Why did u write 1.5 for 3over 2?

@Fr0stbyteGamezz 2 года назад

if we break it up, 2/2 equals 1 and 1/2 is half. add together and 3/2 is 1.5

@bideskristinemayv.4116 3 года назад

oh my gosh i didnt get it sorry huhu,

@liuguanting9222 6 лет назад

isn't the onther way round?

@AVA-hu4yf 6 лет назад

i agree, im confused by this. How is the energy of one pants half that of one shirt when it takes twice the amount of energy to make 1 pants. Shouldnt it be reversed? Op cost of pants is 2 and op cost of shirts is 1/2?