Chapter 8 - Trade

Question 1

What is the comparative advantage?

Answer 1

• The ability of one economic agents to produce at lower opportunity cost than another
• whenever potential trading parties have differences in opportunity costs, they can each benefit from trade

Question 2

How can we measure differences in cost of production?

1.
2.

Answer 2

• the number of hours required to produce a unit of output (e.g. one kilogram of potatoes)
• the opportunity cost of sacrifising one good for another

Question 3

The producer who has the smaller opportunity cost of producting a good is said to have a…. in producing that good.

Answer 3

comparative advantage