chapter  4
13 Pages

Trade among regions

One of the central features of modern society is trade. We no longer personally make most or even more than a few of the items that we consume. Instead, people specialize in the production of a few goods or services in which they can acquire training and skill and then trade either their produced goods or money for what they want to consume. This is a very good thing as trade benefi ts society in two important ways: through productivity gains derived from specialization of labor and through increased consumer utility from the greater variety in consumption. This chapter will examine the economics of interregional trade in a manner that makes clear how the possibility of extraordinary profi ts serve as the incentive to bring separate markets into a trading equilibrium that benefi ts both regions (although not all parties involved). Arbitrage opportunities between regions is the driving force behind interregional trade.