Chapter 3

Question 1

What gives us a bowed out possibilities frontier

Answer 1

When the opportunity cost of producing one good changes depending on how much is produces

Question 2

What is absolute advantage

Answer 2

When someone can do something better than someone else; the person who uses the least amount of inputs to produce a good has absolute advantage in producing that good

Question 3

What is comparative advantage

Answer 3

When someone can produce a good at lower opportunity cost than another

Question 4

What are benefits from trade based on

Answer 4

Comparative advantage

Question 5

Why can everyone benefit from trade

Answer 5

Because it allows them to specialize in the production of a good or service for which they have a comparative advantage

Question 6

What must happen for both sides to benefit from trade

Answer 6

The price at which they exchange goods must lie between their two opportunity costs

Question 7

What is importing

Answer 7

When a country buys a product from a different country

Question 8

What is exporting

Answer 8

When a country sells a product to a different country