MacroEconomics

Australia has a lower opportunity cost of producing surfboards relative to New Zealand

Assume that Australia has a comparative advantage in producing surfboards and New Zealand imports surfboards from Australia. We can conclude that

Some individuals in both countries may be made worse off because of trade

Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade. These examples are misleading because

Comparative advantage

The ability of one person or nation to produce a good at a lower opportunity cost than the other

absolute advantage

The ability to produce more of a good or service than competitors when using the same amount of resources

opportunity cost

To explore the rationale for specialization, economists use the

Raise; lowering

According to the theory of comparative advantage, _______________trade and specialization productivity by _____________ opportunity costs

make everyone better off

Specialization and trade exploit differences in productivity across workers and