Course
Everyday Economics (15 videos)

When Tasmania was cut off from mainland Australia, it experienced the miracle of growth in reverse, as the reduction in trade and human cooperation led death and extreme poverty for its inhabitants.

What can a small, isolated island economy teach the rest of the world about the nature and causes of the wealth of nations? When Tasmania was cut off from mainland Australia, it experienced the miracle of growth in reverse, as the reduction in trade and human cooperation forced its inhabitants back to the most basic ways of living. In an economy with a greater number of participants trading goods and services, however, there are more ways to find a comparative advantage and earn more by creating the most value for others. Let's join Bob and Ann as they teach us the "Story of Comparative Advantage" like you’ve never seen it before.

Download
Options
Translate Practice Questions

Contributed Content (0) and Suggested Materials (1)

Ask a Question

 
Please register or login to answer a question
 
user's picture

You can see the Microeconomics course on this site for the best answer. The short answer is that self-interested actors in a free market converges to the solution that maximizes the total good. However, no one can "do" the calculation; no one can tell you exactly what would have happened if things had been different. But that's life. Still, maybe you can get an estimate by modeling the situation in a simpler way, such as understanding Ann and Bob.

For instance, in this simple model, you are quite right to notice than Annland will be richer if it produces more. But you should also note Bobland will be poorer if it refuses to trade than if it engages in trade.

If the fishermen resort to sabotage, then Annland and Bobland build navies, or throw them in jail, or come up with a better idea. Or they just suffer through it, depending on their estimate of the cost. (Piracy has always been part of trade, its mentioned in commonplace terms in the Iliad, I'm told.) Who knows? No one knows.

Feel free to let us know if you find or invent a better way of introducing these ideas; I think it is pretty good.

Please register or login to answer a question
 
Please register or login to answer a question
Please register or login to ask a question