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In a World of Two Goods and Two People, Explain

question 21

Essay

In a world of two goods and two people, explain why there are gains from trade if:
a. one person can produce only one good and the other person can produce only the other good.
b. each person can produce both goods but can produce one of the goods only at a great cost.


Definitions:

National Income

Total income earned by resource suppliers for their contributions to gross domestic product plus taxes on production and imports; the sum of wages and salaries, rent, interest, profit, proprietors’ income, and such taxes.

U.S. Farm Products

Agricultural commodities produced in the United States, including grains, fruits, vegetables, meat, and dairy products.

Economic Growth

(1) An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita.

Technological Change

The introduction of new technologies or the improvement of existing ones, which can significantly impact productivity, efficiency, and value creation in various sectors.

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