5.1: Lecture
Why do people engage in exchange among themselves and why is this so prevalent all over the world? Every day billions of strangers deal with other strangers and arrive at mutually beneficial trades. Watch this lecture to understand why this is the case, by exploring how trade is another method humans have found to increase the value and productivity of their time. You are encouraged to think of the benefits of trade by analyzing how your life would look if you had to rely on yourself to secure their needs for one day. Topics covered include: Coercion • Voluntary exchange • Economic exchange • Absolute Advantage • Comparative Advantage • Specialization and the division of labor • Drivers of specialization • Importance of capital accumulation • Why larger markets raise productivity of human action
- Coercion is understood as the imposition on the will of someone through the use of violence, or the threat of violence.
- Voluntary exchange is the way of interaction in which the will of both individuals is respected, as they both reach agreement on terms acceptable to both.
- Comparative advantage analysis shows us that there is a possibility for trade between two parties even if one of them can produce both goods at a lower cost.
- The larger the market that a person is able to trade with, the more they can economize effectively.