CHAPTER 62 SPECIALISATION AND TRADE

Question 1

Absolute advantage

Answer 1

Exists when a country is able to produce a good more cheaply in absolute terms than another country.

Question 2

Comparative advantage

Answer 2

Exists when a country is able to produce a good more cheaply relative to other goods produced domestically than another country.

Question 3

Theory of comparative advantage

Answer 3

Countries will find it mutually advantageous to trade if the opportunity cost of production of goods differs.