CONCLUSION

The principle of comparative advantage shows that trade can make everyone better off. You should now understand more fully the benefits of living in an interdependent economy. But having seen why interdependence is desirable, you might naturally ask how it is possible. How do free societies coordinate the diverse activities of all the people involved in their economies? What ensures that goods and services will get from those who should be producing them to those who should be consuming them?

In a world with only two people, such as the rancher and the farmer, the answer is simple. These two  people can directly bargain and allocate resources between themselves. In the real world with billions of people, the answer is less obvious. We take up’ this issue in the next chapter, where we see that free societies allocate resourses through the market forces of supply and demand.