Econ 1b, Foldvary
Exchange and trade;
"Utility" is the importance we place on goods, or the satisfaction or usefulness we get from goods.
Marginal utility is the utility obtained from one more unit.
A "gain from trade" is the increase in marginal utility that takes place when parties exchange goods.
The principle of diminishing marginal utility:
after some quantity, marginal utility diminishes.
Comparative advantage - a lower opportunity cost.
Free trade is the exchange of goods without any trade barriers such as quotas and tariffs.