chapter 13 Flashcards
The production possibilities frontier (PPF)
is a graph that shows the
combinations of output that the economy can possibly produce given the available factors of production and technology
opportunity costs
The cost expressed in terms of the next best alternative, what must be
given up to acquire something
Autarky
An economic system of self-sufficiency and limited trade. A country is said to be in a complete state of autarky if it has a closed economy, which means that it does not engage in international trade with any other country.
Imports
Goods and services bought domestically but produced in other countries.
Exports
Goods and services produced domestically but sold in other countries.
Ricardian model of trade
attempts to explain the difference in comparative advantage on the basis of technological difference across the nations.
Absolute advantage
The ability to produce a good using fewer inputs than another producer
Comparative advantage
The ability to produce a good at a lower opportunity cost than another producer.
domestic demand curve
shows how the quantity of a good
demanded by domestic consumers depends on the price of that good.
domestic supply curve
shows how the quantity of a good supplied by domestic consumers depends on the price of that good.
world price
is the price of a good that prevails in the world market for that
good.
Gains from trade:
If two countries engage in the free market, then each country will increase its overall consumption by exporting the good for which it has a comparative advantage while importing the other good.
Protectionism
refers to government policies that restrict international trade to
protect domestic industries.
A tariff
is a tax on goods produced abroad and sold domestically.
An import quota
is a limit on the quantity of a good that can be produced abroad and sold domestically.
