Gain

See: Realized Gain, and realize what you're gaining.

Ah, the 1950s...hoops skirts, doo wop, big cars, malt shops, Elvis, and near world economic domination.

Wait, what was that last one? Yeah...during World War Two, pretty much all of the world bombed itself back into the stone age. Except for the U.S., which no one could reach with any bombers...except for Hawaii, and that was just the one time. Besides just, uh...not getting bombed, the U.S. had spent the war ramping up manufacturing production, i.e. making tanks and guns and other fun stuff.

So, after the war, the U.S. had all this capacity to make things. And in the rest of the world, they had all this need for stuff and not much production capacity. Time for some international trade. So the U.S. would make products and send them around the world. And if places couldn't afford to buy those products, the U.S. would loan them money...and then they would buy stuff with it.

A good time for U.S. business, especially manufacturing. Guys in grey flannel suits and fedoras basically ran the world. So that's an obvious example of the gains of trade. Bombed-out Europe benefited because it got much needed supplies. The U.S. benefited because people had jobs and could afford Jello with their TV dinners.

When parties are allowed to voluntarily trade with each other, things usually get better for both sides. That's gains from trade.

Say you have an island with two countries...Yolandia and Hulavania. The people of Yolandia are masters of the string arts. They can make high-quality yo-yos fast and efficiently. Meanwhile, the people of Hulavania have a knack for making circular things. They make great hula hoops.

If Yolanders have to make their own hula hoops, it takes them a long time. It also takes time away from their true love: making yo-yos. So in a typical week, the Yo-landers can make 1,000 yo-yos and 500 hula hoops, splitting their time evenly. On the other side of the island, the Hulavanians can make 300 yo-yos and 800 hula hoops, splitting their time evenly between the two. But what if they traded? What if the Yo-landers only made yo-yos and the Hulavanians only made hula hoops? Then the two countries could just trade with each other.

Well, dedicating their time completely to making yo-yos, the Yolanders can make 2,000 yo-yos. And full-time hula hoop making for the Hulavanians leads to 1,600 hula hoops. Let’s compare that dynamic to the previous output. Before the Yolanders made 1,000 yo-yos and the Hulavanians made 300 yo-yos. That’s 1,300 yo-yos total. And before the Yolanders made 500 hula hoops and the Hulavanians made 800 hula hoops. That’s 1,300 hula hoops total. But after the two started trading with each other, we got 2,000 total yo-yos and 1,600 hula hoops. Production is generally up…all thanks to the two sides getting to focus on producing their specialty.

When countries specialize, they are able to become more efficient. They end up making their product cheaper by getting better at making it than other countries could. It all depends on a country’s conditions. Like…countries by the ocean...produce seafood. Countries with good farmland...produce grains. Countries with mountains produce, uh...postcards. These conditions (specialization and natural advantage) lead to a concept called comparative advantage. Each country does what it does best. Costs for everybody go down.

Countries end up specializing in particular production….like in Yolandia and Hulavania. Rather than creating a little of everything...they specialize and make a surplus of the things they’re good at. They export these surpluses to the rest of the world. With the money they get from the exports, they can afford to import other products...the stuff they didn't produce themselves. These imports are relatively cheap because they’re being produced in countries that use their comparable advantage to produce them at a lower cost than they could generally be produced.

Everyone ends up with more of everything.