ECON 201 Chapter Notes - Chapter 3: Serena Williams, Absolute Advantage, Comparative Advantage

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31 Jan 2017

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Chapter 3: interdependence and gains from the trade. A production possibilities frontier allows us to view possible efficient and inefficient outputs of production to make trade decisions based on personal preferences. Specialization with trade allows increase in efficiency of production. 3. 2 comparative advantage: the driving force of specialization. Absolute advantage: the ability to produce a good using fewer inputs than another producer. The opportunity cost measures the trade-off between the two goods that each producer faces. Comparative advantage: the ability to produce a good at a lower opportunity cost than another producer. Comparative advantage reflects the relative opportunity cost. Gains from specialization and trade are based not on absolute advantage but on comparative advantage. When each person specializes in producing the good for which he or she has a comparative advantage, total production in the economy rises. We can also view the gains from trade in terms of the price that each party pays the other.

Related Questions

4) A person who has an absolute advantage in the production of all goods will A) produce all goods at the lowest opportunity cost. B) also have a comparative advantage in the production of all goods. C) not be able to gain from specialization and trade. D) have a comparative advantage in the production of only some goods and not others. E) not have a comparative advantage in the production of any goodo.

The law of comparative advantage states that:

a. each country should specialize in producing the good with the lowest opportunity cost.

b. a country that is able to produce something using fewer resources than other countries would gain from specialization and trade.

c. international trade barriers slow the introduction of new goods and better technologies.

d. countries can gain from trade if production is subject to economies of scale.

e. countries must agree on how much of one good exchanges for another.

turquoiseferret638

1. The law of comparative advantage says that:

A. whoever has an absolute advantage in producing a good also has a comparative advantage in producing that good.

B. whoever has a comparative advantage in producing a good also has an absolute advantage in producing that good

C. the individual with the lowest opportunity cost of producing a particular good should produce it

D. comparative advantage exists only when one person has an absolute advantage in the production of two goods

2. A country has an absolute advantage in the production of a good if that country:

A. can produce good using fewer resources than another country would require

B. has the lowest opportunity cost of producing the good, regardless of whether it is produced with the fewest resources

C. has the greatest opportunity cost of producing the good, regardless of whether it is produced with the fewest resources

D. has the lowest opportunity cost of producing the good and can produce it with the fewest resources

3. A production possibilities frontier can shift outward for all of the following reasons except:

A. a larger workforce

B. a decrease in the size of the labor force

C. an increase in the skills of the labor force

D. an improvement in technology

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ECON 201 Chapter Notes - Chapter 3: Serena Williams, Absolute Advantage, Comparative Advantage

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