Ch 2

Question 1

A person has an absolute advantage

Answer 1

if he or she can perform the task in fewer hours than the other person

Question 2

A person has a comparative advantage

Answer 2

if his or her opportunity cost of performing the task is lower than the other person’s opportunity cost

Question 3

Comparative advantage

Answer 3

your skill at that task compared to your skill at other tasks

Question 4

Multiple people are faced with multiple tasks.

Answer 4

Each should concentrate on the activities for which they have the lowest opportunity cost

Question 5

Sources of Comparative Advantage

Answer 5

Talent
Natural resources
Cultures or societal norms
   - Languages
   - Institutions

Question 6

The Principle of Increasing Opportunity Cost

Answer 6

• Start with resources with lowest opportunity cost
• Then move to next highest opportunity cost
• And still higher opportunity cost

Question 7

Some Countries Resist Specialization

Answer 7

Specialization is easier when
   Population density passes a threshold
   Markets are connected
              Transportation for goods
              Communications for services
   Legal framework supports business
   Financial markets enable start-ups

Question 8

Principle of Comparative Advantage and gains from trade apply worldwide

Answer 8

Potentially large gains from trading with different and distant countries

Question 9

Trade can be controversial

Answer 9

Trade benefits society broadly
Costs are concentrated
Some industries suffer
People lose their jobs