T2: Trade and Technology

Question 1

What is absolute advantage?

Answer 1

The ability of an individual, firm, or country to produce more of a certain good than other producers with the same resources. Best technology for producing a good.

Question 2

What is comparative advantage?

Answer 2

The ability of a country to produce a good at a lower opportunity cost than others

Question 3

What does the Ricardian model predict as the pattern of trade?

Answer 3

Countries export goods for which they have a comparative advantage, determined by the relative opportunity cost

Question 4

What happens if the world price is below our domestic relative price?

Answer 4

we will export our goods, because we have a comparative advantage and can gain a profit