PART 2

Question 1

2 basic reasons why countries engage in INTERNATIONAL TRADE

Answer 1

Countries benefit from their differences by reaching an arrangement in which one does the things it does relatively well.

Countries trade to achieve economies of scale. That is, if each country produces only a limited range of goods.

Question 2

Economies of Scale

Answer 2

cost advantages that a business can exploit by expanding their scale of production. The effect is to reduce the average (unit) costs of production

Question 3

______ becomes more efficient as the _______being produced increases

Answer 3

Production, number of goods

Question 4

Ricardo considered what goods and services countries should produce and suggested that they should ______ by allocating their scarce resources to produce goods and services for which they have a ______

Answer 4

specialize, comparative advantage

Question 5

The cost of something that has to be given up in order to gain from something.

Answer 5

Opportunity Cost

Question 6

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production

Answer 6

Production Possibility Frontier

Question 7

The inputs needed for creating a good or service, which include land, labor, entrepreneurship, and capital

Answer 7

Factors of Production

Question 8

What to Know About Production Possibilities Curves

Answer 8

The points show how much of each good will be produced when resources shift, thus impacting more production of one good and less of the other

It doesn’t indicate how much of each good should be produced, but the production sacrifice needed to make more of the other good

It demonstrates the concept of opportunity cost

Question 9

Ricardian Model Basic prediction

Answer 9

countries will tend to export goods in which they have relatively high productivity