Chapter 3 Flashcards
What gives us a bowed out possibilities frontier
When the opportunity cost of producing one good changes depending on how much is produces
What is absolute advantage
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
What is comparative advantage
When someone can produce a good at lower opportunity cost than another
What are benefits from trade based on
Comparative advantage
Why can everyone benefit from trade
Because it allows them to specialize in the production of a good or service for which they have a comparative advantage
What must happen for both sides to benefit from trade
The price at which they exchange goods must lie between their two opportunity costs
What is importing
When a country buys a product from a different country
What is exporting
When a country sells a product to a different country
