Specialization and Trade: Crash Course Economics #2

In which Adriene Hill and Jacob Clifford teach you about specialization and trade, and how countries decide whether they're going to make stuff or trade for stuff. You'll learn about things like comparative advantage, the production possibilities frontier and how to make pizza!

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[kffjmcu]

*Main outtakes of this lesson:*
1) Economics is the study of scarcity and choices. We have limited resources, so we need a way to analyze the best way to use them.
2) Significant sustained increase in people's lives happened after _Industrial Revolution_.
3) Adam Smith concluded that _division of labor_ made countries wealthy.
a. Analogy: one pizza takes few people to be created. One prepares ingredients, another puts it in the oven, another one puts it in the box. This division makes each worker more productive, since each one is focused on a thing they do best and they don't need to spend time switching between the tasks.
b. Without _specializations_, if you want something - you have to make it yourself.
c. So if you are good at producing something - specialize at it and then _trade_ with others.
4) Production Possibilities Frontier (PPF) shows different combinations of two goods being produced using all resources efficiently.
a. Every possible combination inside the curve is inefficient. On the curve - efficient. Outside - impossible.
b. The country that can produce more goods of one kind (per time) than another country is having an _absolute advantage_ over another country in production of those goods.
c. _Opportunity cost_ is a cost of production of good, measured in losses in production of another good.
d. Country that can produce good with cheaper opportunity cost, has _comparative advantage_ over another country.
e. Individuals and countries should specialize in producing things in which they have a comparative advantage and then trade with other countries that specialize in something else. This trade is mutually beneficial.
5) If there is one point where economists agree it's that specialization and trade makes the world better off.
6) *Self-sufficiency is inefficiency*

[AryanSingh-pxny]

This series has already covered everything that I studied in a whole term of economics

[AngelBlkraptor]

"If you wish to make an apple pie from scratch, you must first invent the universe."

[abhishanu]

So basically it is like the human body; each individual cell working by itself to survive is highly inefficient and ineffective but as soon as you put these cells together to make up a system called human body they work in harmony as a single organism to increase efficiency and become allot more effective. This can also be seen in ecosystems; and how nature operates and manages efficiency.

[geniusmp]

"Self-sufficiency is inefficiency." I love it. I can't tell you how many times I've tried to explain this to people. We humans are better off when we collaborate then when we try to go it alone. We're all in this together. That you drew this lesson from Adam Smith, one of the laissez-faire heroes of many of the people to whom I have to keep trying to explain this, just makes it even better.

[Boxxxxxxxxx]

"Self-sufficiency is inefficiency" -- That quote is spot on.
It rings true in the world of business, leadership, and it is applicable to life as a whole.

[Khansle]

As someone who has never formally studied economics before, I found that PPF graph and Mr. Clifford's explanation really helpful for understanding why it's beneficial for countries to trade.

[Zachmanable]

Adam smith actually posited that while increased specialisation would make economies stronger and more productive, it would make the lives of workers more miserable. Think about it, the artisan shoe maker who crafts shoes by hand has a much more fulfilling job than the factory worker who operates a machine to put the plastic caps on shoe laces. This is a hidden, unquantifiable cost of specialisation. These sorts of hidden costs are why economic models fail to describe the world in a realistic manner. I really hope they talk about the limitations of economic models at some point.

[MoiselleTheFae]

Is it just me or did their audio seem a little out of whack at times? I wonder if maybe both mics were picking up one person sometimes?

[hyperssr]

Damn the audio was TERRIBLE in the first minute

[cellogirl]

This series is great, but could Mr. Clifford please speak a little slower?

[TenaGordon]

you have a lisp like i do Jacob. this gives me hope for my career in public speaking

[WheatleyOS]

Dang, my AP Econ teacher makes us watch videos as part of our homework. If only more teachers were like that xD

[nebojsagalic]

Trade between two nations that have a comparable level of development is good for both, yes.
However trade between a richer nation and a poorer nation, if unregulated leads to the less developed country being left unable to develop.
Think about it.
You have 2 Countries A&B, whose citizens interact economically without any government restriction.
If country A has infrastructure (factories) and country B has natural resources and they are trading freely, country A will import natural resources from country B and export industrial products to country B. Country B cannot develop an industry of its own, as its products would be inferior in every way to country A`s. They only possible advantage they could have is cheaper labor. But then again, why would n`t workers from country B go and look for a better life in country A? Remember, no government restrictions. And why would country A`s enterprises relocate from country A to country B when B`s workers are coming to them?
This is basically what West Europe (A) does to East Europe (B). It`s what the Global North (A) does to the Global South (B).

[smellybing]

This is a refreshing choice of topic. After watching the first crash course economics, I thought the second ep will be on micro-economics stuffs like demand and supply but a straight dive to comparative advantage is surprising and refreshing.

[ekonomikachannel]

halo i'm from indonesia.. i'am a economic teacher senior high school. I enjoy learning economic material from this channel. Very insightful, thank you

[martinp]

Although I do like the study of economics I would really like to see ChrashCourse do a series on philosophy (and not only the Western part) - I know some philosophers have appeared in the history-series, but to take a more direct focus would be pretty cool at some point.

[Neeper]

Damn. I can’t imagine not being a native English speaker and trying to understand this. They speak fast! Slowing it down to 0.75x makes it better for those struggling.

[reubenjake]

Doesn't this guy resemble Mark Cuban?

[AstroTorch]

Dear Economics,
That's cute.

Love,
Physics.