learning catalytics #2

which of the following best explains the principle behind comparative advantage?

people should specialize in producing things for which they incur the least opportunity cost and trade with others for things in which they incur the least opportunity cost.

texia and urbania produce food and clothing and do not trade. both countries have linear production possibility frontiers. if texia specializes in food, it can produce 1,000 units of food and 0 units of clothing this year. if it specializes in clothing, it can produce 500 units of clothing and 0 units of food. this year urbania can produce either 500 units of food and 0 units of clothing or 200 units of clothing and 0 units of food. q: _has the absolute advantage in the production of clothing and __has the absolute advantage in the production of food.

texia; texia

texia and urbania produce food and clothing and do not trade. both countries have linear production possibility frontiers. if texia specializes in food, it can produce 1,000 units of food and 0 units of clothing this year. if it specializes in clothing, it can produce 500 units of clothing and 0 units of food. this year urbania can produce either 500 units of food and 0 units of clothing or 200 units of clothing and 0 units of food. q: _has the comparative advantage in the production of clothing and __has the comparative advantage in the production of food.

texia; urbania

what is the circular flow diagram?

a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market

a student argues that if a person has an absolute advantage in the production of a good/service, they should always produce that good/service.

i disagree. absolute advantage refers to the ability to produce more of a good/service using the same amount of resources and comparative advantage refers to the ability to produce a good/service at a lower opportunity cost. while a person can have an absolute advantage in both goods, comparative advantage is the basis for trade.

most economies in the world are?

mixed economies

what does comparative advantage refer to?

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