Lecture 2

Question 1

who produces which goods and why?

Answer 1

1. globally we coordinate production to meet global demand.
2. production is an outcome of people’s self-interest
3. this can be called the invisible hand

Question 2

what is absolute advantage

Answer 2

1. when production in a certain place of the same product is higher in output volume or more efficient

for example korea can produce more wheat than india

Question 3

absolute and comparative advantage

Answer 3

to decide what their advantages country calculate the opportunity costs between goods they are considering on producing.

hong kong can produce 1 shirt for every 10 boxes of rice

Question 4

comparative advantage

Answer 4

a country has comparative advantage in a good if it can produce it at a lower opportunity cost than other countries.

Question 5

why specialize

Answer 5

when a country specializes total production increases which allows for more trade. this can often improve local economies drastically.