Chapter 3 Comparative Advantage and The Gains from Trade

Describe the Ricardian Model

It assumes that firms are price takers, or, in other word, markets are competitive, and no firm has market power.

What is mercantilism?

It is a system that stressed export over imports

What is Absolute Productivity Advantage?

It is defined as having higher labor productivity.

What is Comparative Productivity Advantage?

Its opportunity costs of producing goods at a lower than those of its trading partners.

What is "zero sum."?

One person's gain is one person's losses

Explain how a nation can gain from trade even though as a result not everyone is better off

* More available and cheaper products to consumers

Autarky is:

A complete absence of trade

What is an absolute advantage?

Absolute advantage refers to the ability to produce MORE or better goods and services than somebody else

What is a comparative advantage?

Comparative advantage refers to the ability to produce goods and services at a lower opportunity COST, not necessarily at a greater volume.

Trade Adjustment assistance (TAA):

Programs that take the form of extended unemployment benefits and worker re-training.

Production Possibilities Curve (PPC):

Shows the trade-off a country faces when it chooses its combination of bread and steal

Relative price is:

the opportunity cost