3: Interdependence and the gains from trade

Question 1

Differences in costs of production: 2 ways

Answer 1

1. Absolute advantage:
   + same good, less time
   + same time, more goods
2. Comparative advantage: lower opportunity cost

Question 2

Trade can make ___ ?

Answer 2

everybody better off.

Question 3

Principle of comparative advantage?

Answer 3

Each good should be produced by the individual that has the SMALLER OPPOTUNITY COST of producing that good.