Module 4

Question 1

Trade

Answer 1

Key to higher standard of living so not everybody has to produce everything
Providing goods and services for each other in return for other goods and services

Question 2

Gains from trade

Answer 2

By dividing tasks and trading, everyone can get more of what they want than they could if they were self sufficient

Question 3

Specialization

Answer 3

The division of tasks so that each person specializes in what they are good at
Leads to increases output

Question 4

Comparative advantage

Answer 4

Basis for mutual gain

The person with lower opportunity cost for producing that good

Question 5

How do you set the price of trade?

Answer 5

People are only willing to trade if the price of each good is less than his own opportunity cost for producing that good himself

Question 6

Absolute advantage

Answer 6

When you can make more of something with a given amount of time and resources

Question 7

Terms of trade

Answer 7

The amount of import good an economy can purchase per unit export goods

Question 8

Who should specialize in what?

Answer 8

The person with the lower opportunity cost