Author Question: Why do people specialize and trade? What will be an ideal ... (Read 34 times)

futuristic · **on:** Jun 29, 2018

Why do people specialize and trade?

What will be an ideal response?

Question 2

How is average total cost calculated? If the total cost of producing 190 units of output is 355, what is the average total cost?

What will be an ideal response?

dreamfighter72 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

People can compare consumption possibilities from producing all goods and services through self-sufficiency against specializing in producing only those goods and services that reflect their comparative advantage and trading their output with others who do the same. People can then see that the consumption possibilities from specialization and trade are greater than under self-sufficiency. Therefore it is in people's own self-interest to specialize. It was Adam Smith who first pointed out in the Wealth of Nations how individuals voluntarily engage in this socially beneficial and cooperative activity through the pursuit of their own self-interest, rather than for society's best interests.

Answer to Question 2

Average total cost is calculated by taking total cost and dividing by the number of units of output. Therefore, the average total cost is 355/190 = 1.87 .