Comparative Advantage and Gains from Trade

The given table demonstrates the production capabilities of the United States and Canada to produce cars and boats. Given this information and in accordance with the principles of absolute and comparative advantage, click on the good that the United States should produce.

Boats

What was a major argument for the North American Free Trade Agreement (NAFTA)?

Canada, the United States, and Mexico would each specialize according to their comparative advantage, thereby increasing output.

Click on the term that refers to the ability of one individual, business, or country to produce a good at a lower opportunity cost than another entity can.

Comparative Advantage

Which of the following would likely increase a nation's trade costs?

Increased trade policy restrictions and regulations An increase in the price of fuel

Which of the following best describes the condition when there is no comparative advantage between two countries?

Neither country experiences gains from specialization and trade.

Which of the following terms can have a negative effect on gains from trade?

Shipping costs

What is the main concept of comparative advantage?

To produce products with the lowest domestic opportunity costs

refers to the cost and production efficiencies that one country (or individual or business) may have over another country.

comparative advantage

Comparative advantage makes trade function

efficiently

A country enjoys comparative advantage when goods and services are __________.

exported

The total benefits or rewards that a country achieves from trading are known as __________.

gains through trade

According to David Ricardo, when one country has a comparative advantage in manufacturing a product compared to other countries, it has a lower __________ and should export the product.

opportunity cost

The production possibility curve graphically demonstrates the concept of

opportunity costs

Comparative advantage is a form of (specialization) that enables a quicker, cheaper, and smarter way of working.

specialization