Chapter 3

Question 0

Absolute advantage (Adam Smith)

Answer 0

Requiring smaller number of inputs to produce a good (compares the productivity of one person/firm/nation to that of another)

Question 1

If there is no trade each persons PPF is also his

Answer 1

Consumption possibilities frontier

Question 2

Comparative advantage (David Ricardo)

Answer 2

Having the smaller opportunity cost of producing a good

Question 3

Gains from specialization and trade are based on

Answer 3

Comparative advantage

Question 4

Imports

Answer 4

Goods produced abroad and sold domestically

Question 5

Exports

Answer 5

Goods produced domestically and sold abroad

Question 6

Should US trade with other countries?

Answer 6

Countries should produce more of the goods for which they have comparative advantage and export the surplus in return for a good for which the other country has comparative advantage