ECON 201 Chapter 19 quiz

What is absolute advantage

A country's ability to use fewer resources to produce a good than another country.

A unit of resources

A given amount of natural resources, labor and capital

Import

A good produced abroad and sold at home

How does Comparative advantage lead to gains of trade?

If you have a comparative advantage in a good then you can focus on producing the good you have a lower opportunity cost for and export that good to other places. You can make more money off of selling this good and gain the other good at a lower cost than what it would be for you to produce it.

Resource cost

The amount of resources used up in producing a unit of some good or service.

Consumption possibility boundary

The possible combination of goods consumed when a nation specializes in comparative advantage and engages in trade.

Why might a low income country put up barriers to trade like taxes?

They might put up barriers to protect domestic producing industries. When you make taxes it causes imported gods to be higher than domestic goods causing people to buy more of the domestic product than the imported product.

How would you respond to someone who says a country doesn't have an absolute advantage in production and due to this they cannot benefit from trade?

This is an incorrect viewpoint because even though a country doesn't have an absolute advantage doesn't mean that they don't have a comparative advantage in some production that they could use and gain from trade. Every country can gain from trade.

Specialization

When a country shifts resources to focus on producing a good that offers a comparative advantage.

Can a company's comparative advantage change over time?

Yes a comparative advantage can change based on the skill level of workers, the level of education, increase of technology etc.

Is it possible to have a comparative advantage in production of a good but not an absolute advantage?

Yes, a country can produce a goos at a lower opportunity cost than another good and this doesn't mean they need to use fewer resources to do so. Don't have to have absolute advantage to have a comparative advantage.

Export

a good produced at home and sold abroad

Production possibilities boundary

a graph that shows for two goods how much a country is capable of producing. The graph shows all possible production splits.

Comparative advantage

lower opportunity cost of production

Arbitrage

the buying and selling in different markets

Opportunity cost

the possibilities not realized when resources are used for a given purpose. The best alternative use of resources you didn't do.

What is comparative advantage?

when a country can produce a good at a lower cost in terms of other goods, or a lower opportunity cost of production.