ShmoopTube

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And finance Allah shmoop what our gains from trade Ah

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the nineteen fifties hoop skirts do up big cars malt

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shops Elvis in a near world economic domination by the

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U S What was that last one Yeah well during

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World War two pretty much all the world bombed itself

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back into the Stone Age Well except for the U

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S Which well nobody could reach with any bombers except

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for Hawaii And well that was just that one time

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you know Well besides just not getting bombed the U

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S Had spent the war ramping up manufacturing production I

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am making tanks and guns and other fun stuff So

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after the war the US had all this capacity Teo

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you know make stuff And in the rest of the

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world well they had all this need for that stuff

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and not much production capacity and well no capital and

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well pretty much no buildings Yeah well time for some

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international trade So the U S wouldn't make products and

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send them around the world And if places couldn't afford

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to buy those products well we just lend them money

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and they become bankers to the world while we're at

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it And then Well then they'd be kind of forced

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to buy stuff with us for a long long time

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till they get pay off those debts and they never

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did So they keep buying Who's good time for us

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business especially manufacturing You remember the guys the man in

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the gray flannel suit That novel Yeah they had fedoras

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and well they basically ran the world So that's an

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obvious example of the gains from trade that we made

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bombed out Europe benefited because it got much needed supplies

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And the US benefited because well people had jobs and

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could afford Jello with their TV dinners What when parties

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are allowed to voluntarily trade with each other with low

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friction while things usually get better for both sides That's

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called gains from trade in the friction yet taxes and

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transaction costs We don't want those So let's say you

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have an island with two countries Yola India and Cool

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Ooh Vania All right well the people of your land

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eah are masters of the string arts and they could

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make high quality Yo yo's fast inefficiently Meanwhile the people

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of Hu Lu Vania have a knack for making circular

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things like they make great loops Well if yo landers

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have to make their own hula hoops It takes them

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a long time Also takes the time away from their

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true love which is making yo yo's So in a

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typical week the old Landers can make a thousand yo

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goes and five hundred hoops splitting their time evenly But

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on the other side of the island the hula vain

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Ian's can make three hundred yo goes and eight hundred

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hula hoops splitting their time evenly between the two different

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numbers there Yeah but what if they traded That is

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what if the old landers on Lee made yo yo's

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and the Who Louvain Ian's only made who loops Well

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then the two countries could just trade with each other

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and optimize their production efforts Right We'll dedicating their time

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completely to making yo yo's The old landers can make

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two thousand Yo yo's in that same time period and

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full time Hula hoop making for the hula vain Ian's

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while that leads to sixteen hundred loops So let's compare

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that dynamic to the previous output Well before the old

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Landers made a thousand yo goes and the hula vain

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Ian's made three hundred yo yos and thirteen hundred yellow's

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total And before the yield Landers made five hundred Who

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loops And the Hula Vain Ian's made eight hundred Who

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loops And that's thirteen hundred hula hoops total But after

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the two gods started trading with each other well we've

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got two thousand total Yo yo's and sixteen hundred Hula

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hoops Production is generally up all things to the two

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sides getting too focused on producing their specialty and note

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There's no taxes and commissions and other stuff to cloud

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the numbers here for you like there is in real

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life Well when countries specialized they're able to become more

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efficient They end up making their product cheaper by getting

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better at making it Then other countries could write like

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Think about how awesome watches are from Switzerland They've had

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like four hundred years to perfect the art kind of

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like semi conductors in Silicon Valley Well it all depends

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on the country's conditions like countries by the ocean Well

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produce or gather seafood right countries with good farmland produce

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awesome corn and greens and stuff Countries with mountains produce

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quell postcards While these conditions specialization a natural advantage lead

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to a concept called comparative advantage Each country does what

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it does best costs for everybody go down well Countries

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end up specialising in particular production like Yolanda and Lulu

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Vania Rather than creating a little of everything they specialize

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and they make a surplus of the things they're good

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at making Well They then export these surpluses to the

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rest of the world With the money they get from

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those exports they could afford to import other products right

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The stuff they didn't produce themselves well These imports are

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relatively cheap because they're being produced in countries that use

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their comparative advantage to produce them at a lower cost

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than they could generally be produced elsewhere Well everyone ends

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up with Mohr of everything And as you know Mohr

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is better We'll think about the good people of your

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clammy and hula Vania Obviously they can't eat yo yo's

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and hula hoops but their lousy farmers and their terrible

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fishermen All they want to do is make Yo yo's

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and or hula Hoop right So gains from trade allow

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them to just do that The two thousand year Agos

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and the sixteen hundred Hula hoops the two of them

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make can get shipped to other countries They can use

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the cash earned to bring in food from the U

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S and cars from Japan and TVs from Korea You

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know anything they want Well those air the short term

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gains from trade Basically it's all about making money You're

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making the most amount of money that you can buy

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specializing But there are some long term gains from trade

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to gains that can't necessarily be measured in bean counting

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or tracking nickels and dimes Kuwait is a small country

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in the Middle East The country doesn't have a lot

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to do with the United States While circa nineteen ninety

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most Americans had no idea that Kuwait even existed But

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Kuwait produced a lot of oil oil Americans used Kuwait

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had a strong trade relationship with us in oil well

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In nineteen ninety Kuwait was invaded by the kindly loving

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generals from Iraq Well rather than just shrug its shoulders

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the U S launched its biggest military effort since Vietnam

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in order to kick Iraq out and restore Kuwait as

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a sovereign nation We'll compare that to what happened Teo

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George Shit Different Georgia In two thousand eight Russia invaded

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the country Did the U S Mount a major military

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effort to save the tiny nation from a Russian invasion

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No why Well Georgia's major exports included hazelnuts and wine

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Yeah doesn't quite get the martial spirit pumping quite like

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crude oil does because Kuwait had a strong trading relationship

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with the US providing a vital commodity that we all

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care about while the U S Was willing to step

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in and protect Kuwait and risk American lives when it

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was invaded While building trade relationships can be like buying

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a friend in the doggy dog world of international relationships

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if Kuwait had just tried to keep itself and not

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sell oil to the U S well it wouldn't have

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been able to talk us into protecting it in its

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big time of need there But let's be really It's

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mostly about money and the stuff money can buy gains

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from trade lead all sorts of material benefits Think about

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your own life because well there are farmers out there

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who grow food and raise animals And because there are

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manufacturers out there who assemble hot pockets and because you're

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able specialize while you have time to get really good

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at playing fortnight So these guys they're good at farming

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and making greasy handheld food products You get great at

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video games Nice trade The farmer in the worker can

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then watch your twitch channel when they get home Yeah

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everyone benefits eventually That's what happened in the post nineteen

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fifties America Instead of making everything other countries finally rebuilt

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themselves after well their destruction in World War two So

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the U S could import better cheaper cars from Japan

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and Korea and elsewhere Cheaper electronics from Taiwan and China

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and other places Cheaper clothes from places like the Philippines

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Latin America cheaper customer service Call talkers from India Better

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music from Britain better actors from Australia So next time

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you watch Hugh Jackman in a movie that has Beatle

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songs on the soundtrack while enjoying it on a big

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screen TV from Korea sitting on a couch made in

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Mexico wearing a full length body snugly made in the 00:07:56.298 --> [endTime] Philippines Well you can think games from trade here

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