Chapter 2- Trade

Question 1

Three Benefits of Trade

Answer 1

makes people better off when preferences differ
increases productivity through specialization and division of knowledge
increases productivity through comparative advantage

Question 2

Trade & Preferences(2 bullet points)

Answer 2

moves goods from people who value them less to people who value them more
generates wealth

Question 3

Specialization, Productivity, & Division of Knowledge(4 bullet points)

Answer 3

people specialize in 1 area only when they’re confident they can trade that for a good they need
as trade increases, specialization increases, productivity increases
without trade specialization isn’t possible
division of tasks- when each person knows something different, society’s combined brain power is combined

Question 4

Comparative Advantage(3 bullet points)

Answer 4

countries have a comparative advantage in a good when their opportunity cost for producing another good is lower
absolute advantage- when countries can create the most of a product with the least amount of inputs
Production Possibilities Frontier- shows all combinations of goods a country can produce given its productivity and supply of inputs(illustrates trade off)