Chapter 3 - Interdependence and the Gains from Trade

Question 1

Absolute Advantage

Answer 1

The comparison among producers of a good according to their productivity.

Question 2

Comparative Advantage

Answer 2

The comparison among producers of a good according to their opportunity cost. The producer who gives up less of one good to produce another has a lower opportunity cost, so they have the comparative advantage.

Question 3

Imports

Answer 3

Goods and services produced abroad and sold domestically.

Question 4

Exports

Answer 4

Goods and services produced domestically and sold abroad.