Trade Economics

Experienced economist and not so experienced economist are walking down the road. They come across some shit lying on the asphalt. Experienced economist: “If you eat it I’ll give you $20,000!”

Not so experienced economist runs his optimization problem and figures out he’s better off eating it so he does and collects money.

Continuing along the same road they almost step into yet another shit. Not so experienced economist: “Now, if YOU eat this shit I’ll give YOU $20,000.”

After evaluating the proposal experienced economist eats shit getting the money.

They go on. Not so experienced economist starts thinking: “Listen, we both have the same amount of money we had before, but we both ate shit. I don’t see us being better off.”

Experienced economist: “Well, that’s true, but you overlooked the fact that we’ve just been involved in $40,000 of trade.”