Chapter 3 - Interdependence and the Gains from Trade Flashcards
What is absolute Advantage?
The comparison among producers of a good according to their productivity.
What is Opportunity cost?
Whatever must be given up to obtain some item.
What is Comparative Advantage?
The comparison among producers of a good according to their opportunity cost.
What is gained from specialization in production?
The gains from specialization and trade are based not on absolute advantage but rather on comparative advantage.
When each person specializes in producing the good for which he or she has a comparative advantage, total production in economy rises.
What conclusions can you draw from comparative advantages with specialization?
Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.
What is the incentive to gain from trading?
The price at which they trade must lie BETWEEN the two opportunity costs.
Please Refer to Chapter 3 slides on D2L for more content to understand.
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