Chapter 3 - Interdependence & the Gains from Trade

Question 1

Does trade make everyone better or worse off?

Answer 1

Better

Question 2

With no trade, a production possibilites frontier graph is also a ________?

Answer 2

Consumption possibilities graph

Question 3

Absolute advantage

Answer 3

The ability to produce a good using fewer inputs than another producer

Question 4

Opportunity cost

Answer 4

Whatever must be given up to obtain some item

Question 5

Comparative advantage

Answer 5

The ability to produce a good at a lower opportunity cost than another producer.

Question 6

Gains from specialization & trade are based on _____?

Answer 6

Comparative advantage

Question 7

When each producer _______ in producing the good they have a comparative advantage in, total production in the economy rises - Everyone is better off!

Answer 7

Specializes

Question 8

With specialization, each consumer can obtain a good at a price ______ than their __________ for that good.

Answer 8

Lower, opportunity cost

Question 9

For both parties to gain from trade, the price at which they trade must lie between the two _________

Answer 9

Opportunity costs

Question 10

Imports

Answer 10

Goods produced abroad & sold domestically

Question 11

Exports

Answer 11

Goods produced domestically and sold abroad