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1、Chapter2BasicTheoryofInternationalTradeCountrieshavedifferentnatural,human,andcapitalresourcesanddifferentwaysofcombiningtheseresources,theyarenotequallyefficientatproducingthegoodsandservicesthattheirresidentsdemand.Thedecisiontoproduceanygoodsorservicehasanopportunitycost,whichistheamountofa
2、nothergoodsorservicethatmightotherwisehavebeenproduced.Givenachoiceofproducingonegoodsoranother,itismoreefficienttoproducethegoodwiththeloweropportunitycost,usingtheincreasedproductionofthatgoodstotradeforthegoodswiththehigheropportunitycost.Whenacountrycanproducemoreofcertaingoodswiththesamer
3、esourcesthatanothercountrycan,itissaidtohaveanabsoluteadvantageintheproductionofthatgoods.Ifthesecondcountryproducingthegoodsthatthefirstcountrywants,bothwillbebetteroffiftheyspecializeandtrade.Buttradeisusuallybeneficialtobothcountriesevenifonehasanabsoluteadvantageintheproductionofbothgoodst
4、hataretobetraded.Givenanytwoproducts,anationhasacomparativeadvantageintheproductwiththeloweropportunitycost.Thetermsoftrademustbesuchthatbothcountrieslowertheopportunitycostsofthegoodstheyaregettingfromthetrade.2.1InternationalSpecializationInhisoriginalstatemanwasself-sufficient,providingfood
5、,shelterand12clothing,simplethoughitwas,forhisfamily.Itdidnottakelong,however,forhimtounderstandthatthereweresomethingshewasmorecapableofdoingthanothersandthatitwouldbenefithimtoconcentratehiseffortsontheproductionofthosegoodsinwhichhewasparticularlyproficientandtoleaveotherstoproducethegoodst
6、hatcalledforskillswhichhedidnotpossess.Thiswasthebeginningofspecialization.Similarly,thosewholivedclosetosourcesoffuelorrawmaterialwereabletospecializeintheproductionofbasiccommoditiesthatcouldnotbesoeasilymanufacturedelsewhere.Thelocationofthemajorityofindustriestodaycanbetracedbacktotheavail
7、abilityoffuelandpower,rawmaterialsandparticularskills,butwiththeadventofnewfuelsthatareavailablenationwideandofcheapandefficientmeansoftransportation,theseoriginalfactorsarenotasimportantastheywere.Specializationonaninternationalbasisis
