Theory og Comparative Advantage and Gains from Trade

Question 1

______ identifies the maximum combinations of two products that a nation can produce by fully utilizing all factors of production with the best technology available

Answer 1

Production Possibility Frontier (PPF)

Question 2

arise from comparative advantage

Answer 2

gains from trade

Question 3

this means that all resources are devoted to the production of one good, with no production of the other good.

Answer 3

complete specialization

Question 5

implications of comparative advantage

Answer 5

Laissez-faire still holds
Gains need not be equal
Hours of work traded need not be equal but the advantage still exists
Trade is based on the existence of relative – not absolute – production advantages