benefit every individual, however Most people benefit from free trade, but some are hurt We will then look at the phenomenon of two-way trade, in which countries both import and export the same goods The last part of the chapter examines the effects of trade restrictions and evaluates the arguments made for such restrictions Economists tend to be skeptical of their validity 17.1 The Gains from Trade LEARNING OBJECTIVES Differentiate between an absolute advantage in producing some good and a comparative advantage Explain and illustrate the conditions under which two countries can mutually benefit from trading with each other Explain and illustrate how the terms of trade determine the extent to which each country specializes Explain and illustrate the mutual benefits of trade To model the effects of trade, we begin by looking at a hypothetical country that does not engage in trade and then see how its production and consumption change when it does engage in trade Production and Consumption Without International Trade Suppose the hypothetical country of Roadway is completely isolated from the rest of the world It neither exports nor imports goods and services We Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 887