Macroeconomics chapter one Flashcards

1
Q

Think of the last time you bought or sold something. Why did you make the trade?

A

You probably traded because you preferred what you got over what you gave up.

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2
Q

What are the 3 benefits of trade

A

1.) trade makes people better off when preference differ
2.) trade increase productivity through specialization and the division knowledge
3.) Trade increases productivity through comparative advantage

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3
Q

What does trade create

A

value

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4
Q

trade moves goods from people who value them ______ to people who value them _____

A

less; more

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5
Q

does trade make people with different preferences worse or better off

A

better off

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6
Q

without trade there would be no what?

A

specialization

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7
Q

People will specialize in the production of a single good only when what?

A

only when they can trade for other goods

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8
Q

What 2 things does specialization do in relation to trade?

A

Increased productivity and division of knowledge

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9
Q

increased productivity in relation to trade

A

we can produce more through trade than by induvial production.

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10
Q

what advantages to people who specialize have in trade

A

they have more knowledge about their field.
Because they sell large quantities, people who specialize can take advantage of large-scale equipment.

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11
Q

division of knowledge

A

without specialization, each person produces their own food, clothing, and so on.

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12
Q

with specialization, much more knowledge is used than what?

A

than what could exist in a single brain

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13
Q

knowledge increases productivity therefore specialization increases total what?

A

total output

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14
Q

every increase in world trade is an opportunity to increase what?

A

the division of knowledge

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15
Q

One of the benefits of specialization is:
a.) less pollution
b.) more equality.
c.) increased productivity

A

c.) increased productivity

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16
Q

absolute advantage

A

The ability to produce the same good using fewer inputs than another producer

17
Q

comparative advantage

A

Producing goods at the lowest opportunity cost.

18
Q

If country A is able to produce Funiture at a lower cost than country B, we would say that country A as a:
a.) absolute advantage
b.) comparative advantage
c.) No advantage

A

a.) absolute advantage

19
Q

to benefit from trade does a country have to have absolute advantage.

A

No, it can still benefit from comparative advantage.

20
Q

production possibilities frontier

A

shows all the combinations of goods that a country can produce given its productivity and supply of inputs.

21
Q

what makes trade profitable

A

differences in comparative advantage, countries will always have some comparative advantages therefore everyone can benefit from trade

22
Q

differences in wages reflect what?

A

difference in productivity

23
Q

Would wages be higher in higher-productivity countries or in low productivity countries?

A

higher-productive companies

24
Q

Globalization and wages

A

Wages will rise in high-demand industries and fall in low-demand industries.
* Workers will move from low-wage industries to high-wage industries until wages equalize.
* The transition isn’t always quick or easy.