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