ECO100Y5 Chapter Notes - Chapter 33: Absolute Advantage, Comparative Advantage, Opportunity Cost
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ECO100Y5 Full Course Notes
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Economy that engages in international trade is called an open economy. Economy that doesn"t engage in international trade is a closed economy. Situation in which a country does no foreign trade is called one of autarky. Without trade each person would have to self-sufficient. A world with individual self-sufficiency would have very low living standards. With trade, people can specialize in what they do well and satisfy other needs by trading. Without interregional trade, each region would be forced to be self-sufficient. With trade, each region can specialize in producing products for which it has some natural or acquired advantage. Gains from trade: the increased output attributable to the specialization according to comparative advantage that is made possible by trade. Absolute advantage: the situation that exists when one country can produce some commodity at lower absolute cost than another country.