EC120 Chapter Notes - Chapter 3: Absolute Advantage, Comparative Advantage, Opportunity Cost

19 views2 pages

yellowmule139

2 Mar 2016

School

Department

Course

Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

carminegrasshopper545 and 38337 others unlocked

EC120 Full Course Notes

Verified Note

30 documents

Document Summary

Each person consumes goods and services produced by many other people both in our country and around the world. Interdependence and trade are desirable because they allow everyone to enjoy a greater quantity and variety of goods and services. There are two ways to compare the ability of two people in producing a good. The person who can produce the good with the smaller quantity of inputs is said to have an absolute advantage in producing the good. The person who has the smaller opportunity cost of producing the good is said to have a comparative advantage. The gains from trade are based on comparative advantage not absolute advantage. Trade makes everyone better off because it allows people to specialize in those activities in which they can have a comparative advantage. The principle of comparative advantage applies to countries as well as to people. Economists use the principle of comparative advantage to advocate free trade among countries.

Related Questions

Suppose only two people on the frontier: Susy and Bob, and two goods: rifles and shelter. If Susy has the comparative advantage in producing rifles, and Bob has the absolute advantage in producing both goods, then: a. No gains from trade can be made and Bob should produce in isolation. b. Bob has a comparative advantage in rifles as well. c. Bod has the comparative advantage in producing shelter. d. Susy should specialize in creating shelter. Explain definitions of comparative advantage and absolute advantage while giving answer please... I believe it is A

emeraldplatypus928

Good Evening My Dear Cramster Family:

I have to answer if these questions are true or false and could you tell me if I am correct with the answers I have chosen? Thank you.

1. Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods. (T)
2. Certain very talented people have a comparative advantage in everything they do. (T)
3. If a certain trade is good for one person it can't be good for the other one. (T)
4. If a certain trade is good for one person it is always good for a country, it must be good for everyone in the country. (F)

All the best,

Nettie

scarletscorpion75

what is a key factor that determines a firm's profitability?

A differentiation of a firm's product from other products

B factors affecting a firm's entire market

C a firm's average cost of production relative to that of competing firms

D chance events

E all of the above

economic theory suggests countries benefit from international trade by producing more of those good and services for which they have a comparative advantage (and less of that for which a country does not have a comparative advantage). However, countries rarely specialize completely, why?

even with international trade, countries rarely specialize completely because

A, all goods and services can be traded internationally

B, some countries would lose as a result of free trade

C, consumers in different countries have homogeneous tastes

D, some countries do not have an absolute advantege producing anything

E, production of most goods involves increasing opportunity costs.

EC120 Chapter Notes - Chapter 3: Absolute Advantage, Comparative Advantage, Opportunity Cost

EC120 Full Course Notes

Document Summary

Get access

Related Documents

EC120 Lecture Notes - Lecture 3: Absolute Advantage, Comparative Advantage, Opportunity Cost

EC120 Lecture Notes - Lecture 16: Absolute Advantage, Comparative Advantage, Opportunity Cost

EC120 Lecture Notes - Lecture 3: Absolute Advantage, Comparative Advantage, Kilogram

Related Questions