Trade
When I was a kid, my mother would pack me an apple in my lunch. I hate apples. I like apple juice, apple sauce, and apple crisp (and, of course, apple pie... this is America, after all), but I hate apples.
Lucky for me, there was this kid who was really into health food, and he would trade me my apple for some delicious bit of hyper-processed junk food. During this mid-90s, this usually meant "Fruit by the Foot," which was at one time the primary way in which American kids got their daily serving of fruit.
Today, that kid is a personal trainer and has six-pack abs, and I am probably at an elevated risk for Type II diabetes. But the more important lesson to be derived from this anecdote is that people (and nations) trade when it is advantageous to them. There are two types of advantage:
Lucky for me, there was this kid who was really into health food, and he would trade me my apple for some delicious bit of hyper-processed junk food. During this mid-90s, this usually meant "Fruit by the Foot," which was at one time the primary way in which American kids got their daily serving of fruit.
Today, that kid is a personal trainer and has six-pack abs, and I am probably at an elevated risk for Type II diabetes. But the more important lesson to be derived from this anecdote is that people (and nations) trade when it is advantageous to them. There are two types of advantage:
- Absolute Advantage is when a country can produce a given good for a lower cost. An example would be if Burundi can make a baseball bat for $17, and in Djibouti it only costs $5, then Djibouti has the absolute advantage.
- Comparative Advantage is the advantage a country has when it can produce a given good at a lower opportunity cost than another country. If the opportunity cost for Burundi to make a baseball bat is 6 nuclear submarines, and in Djibouti the opportunity cost of making a baseball bat is only four nuclear submarines, then Djibouti has a comparative advantage in the production of baseball bats.
While we're talking about trade, I would be remiss if I didn't take a moment to reflect on one of the most important inventions ever, the twenty-foot shipping container. It reduced pilferage, greatly reduced the cost of shipping and logistics, and, when one of these babies has outlived its usefulness, you can turn it into a pretty sweet (and by that I mean "cost-effective") house.