Lecture 1

Question 1

Absolute Advantage

Answer 1

Who can produce more of a good?

Question 2

Comparative Advantage

Answer 2

Who has the lower opportunity cost when producing a good?

Question 3

Opportunity Cost Calculation for Comparative Advantage

Answer 3

Good 1/Good you’re comparing
(ex: opp. cost of a phone compared to car= Car/Phone)

Question 4

Range for Possible Trading Price

Answer 4

Range of opportunity costs between the two countries of a certain good

Question 5

Describe World’s PPF

Answer 5

Concave, represents the increasing opportunity to produce each good; Combine the 2 individual PPF’s to create the World’s PPF; Starts with the person who has the comparative advantage for the good on the x-axis

Question 6

Production Possibility Frontier

Answer 6

Describes the maximum possible outputs of each good that can be produced within the economy given the available resources

Question 7

Overproduction

Answer 7

Result due to DWL; Caused by tariffs; On left side of the government revenue; part of the production cost that should have never happened since the domestic producer is not the lowest opp. cost to produce, should have imported

Question 8

Underconsumption

Answer 8

Effect of DWL; Caused by tariffs; On the right side of government revenue; Area belongs to consumer prior to the tariffs, consumers can no longer derive the CS from this consumption