ECON 1000 Chapter Notes - Chapter 3: Sidney Crosby, Absolute Advantage, Comparative Advantage
6 Sep 2018
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Economics chapter three: interdependence and the gains from the trade. Absolute advantage: the comparison among producers of a good according to their productivity: the producer that requires a smaller quantity of inputs to produce a good is said to have absolute advantage in producing that good. Opportunity costs: whatever must be given up to obtain some item: opportunity costs measures the trade-off between the two goods that each producer faces. This increase in the size of the economic pie can make everyone better off: each party benefits from trade by obtaining a good at a price that is lower than his or her opportunity cost of that good. The price of trade: the principle of comparative advantage establishes that there are gains from specialization and trade. General rule: for both parties to gain from trade, the price at which they trade must lie between the two opportunity costs. Imports: goods and services produced abroad and sold domestically.
