Economic Chapter 3 test review

Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources. (true or false)

False. Correction: absolute advantage is

absolute advantage is the driving force of specialization? (true or false)

False. Correction: comparative advantage is

a countries consumption possibilities frontier can be outside it's PPF if what?

if it trades with other countries

total output in an economy increases when each person specializes because why?

Because each person spends more time producing what they have a comparative advantage in

the "big mac index" is one method of determining

Purchasing Power Parity for a nation's currency

the fact that economists are generally united in their support of free trade is traceable to

adam smith and david ricardo

Specialization and trade are closely linked to

comparative advantage

the principle of comparative advantages as we know it today was developed by who?

david ricardo

the "price" of a currency is determined by what?

how much someone will pay for it

Trade can make everybody better off because it does what?

it allows to specialize according to comparative advantage

What happens to a country without trade (look at consumption possibilities frontier)

it's production possibilities frontier is the same thing as its consumption possibilities frontier

If Shawn can produce donuts at a lower opportunity cost than Sue, then

shawn has a comparative advantage in the production of donuts

Define absolute advantage

the ability to produce a good using fewest amount if inputs

Define comparative advantage

the ability to produce a good with the lowest opportunity cost

the grains from trade are what?

the result of more efficient resource allocation

Adam Smith's book:

the wealth of nations

trade between countries allows them to do/have what?

to consume at a point outside of their PPF

For two individuals who engage in the same two productive activities, it is impossible for one of the two individuals to

to have a comparative advantage in both activities

the goal of a country concerning international trade is what?

to have a favorable balance of trade

A country that currently does not trade with other countries could benefit by

trading with other countries

Know what the interdependent means

we rely upon one another for the goods and services we all consume

Adam Smith asserted that a person should never attempt to make a home...

what it will cost him more to make than to buy