Transacting the Elixir of Life
Chapter 3: Comparative advantage and why we transact
One focus of this book and one of the fundamental ideas in economics is the motivation to transact—our propensity to turn to others to supply our needs and wants rather than attempting to supply them ourselves. Many of the choices described in Chapter 2 involve transactions with others. Given that meaning, the concept of transaction transcends economics and has been applied in other fields such as Transactional Analysis in psychology (e.g., Lapworth and Sills 2011) and the variety of exchanges that occur within personal relationships. One could argue that the logic that steers us to transact with others in commercial relationships applies as well to the costs and benefits considered in our personal relationships. The economic theory of comparative advantage predicts that trade, or transacting, occurs when the costs of producing goods internally (or domestically)—in effect, doing it ourselves—is different from the costs of external production. We want goods and perhaps can even produce everything we want ourselves, but it might be better—indeed, mutually beneficial—to trade with others if they can make it at lower cost. This logic applies in a variety of significant contexts. Ricardo’s original application is the mix of products that different economies produce and in which they specialize and their corresponding patterns of imports and exports as they buy internationally to address domestic shortages and sell internationally from domestic surpluses.
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