micro chapter 3

imports

Goods produced abroad and sold domestically

exports

Goods produced domestically and sold abroad

comparative advantage

when describing the opportunity costs faced by two producers (gains from trade based on this)

absolute advantage

The gains from specialization and trade are based on

a result of more efficient resource allocation than would be observed in the absence of trade

The gains from trade are

consume more goods than we otherwise would be able to consume

The most obvious benefit of specialization and trade is that they allow us to

each person spends more time producing that product in which he or she has a comparative advantage.

Total output in an economy increases when each person specializes because

allows people to specialize according to comparative advantage.

Trade can make everybody better off because it

then specializing in the production of that good and trading for other goods could allow that country to consume at a point beyond its production possibilities frontier.

When a country has a comparative advantage in producing a certain good,

trade between countries

allows each country to consume at a point outside its production possibilities frontier.

absolute advantage

comparing the productivity of one person, firm, or nation to that of another