Ch. 3

Question 1

Define absolute advantage.

Answer 1

the ability to produce a good using fewer inputs than another producer

Question 2

Define comparative advantage.

Answer 2

The ability to produce a good at a lower opportunity cost than another producer. The producer who gives up less of other goods to produce Good X has the smaller opportunity cost of producing Good X and is said to have a comparative advantage in producing it.

Question 3

How can trade benefit everyone?

Answer 3

it allows people to specialize in activities in which they have a comparative advantage

Question 4

What does a Production Possibilities Frontier represent? And how can trade change a PPF?

Answer 4

It shows the various mixes of outputs that an economy can produce.