Chapter 19 Flashcards
(38 cards)
What type of trade does an open economy engage in?
International trade
What type of trade does a closed economy engage in?
No foreign trade
What must everyone be without trade?
Self-sufficient
With trade, what can people do?
They can specialize in what they do well and satisfy other needs by trading
What are the gains of trade?
The increased output attributable to the specialization that is made possible by trade
What does absolute advantage reflect?
It reflects the differences in absolute costs of producing goods between countries
What do comparative advantages reflect?
They reflect the opportunity costs that differ between countries
Whenever opportunity costs differ between countries, ___ can increase the world’s production of both products
specialization
When does world output increase?
When countries specialize in the production of the goods in which they have a comparative advantage
When opportunity costs for all products are the same in all countries, there is no ___ advantage and no possibility of gains from specialization of trade
comparative
When opportunity costs differ in any two countries and both countries are producing both products, it is always possible to ___ production of both products by a suitable reallocation of resources within each country
increase
What must the economy do in the absence of international trade?
It must consume the same bundle of goods that it produces
What does the openness to trade with other countries change?
It changes the pattern of domestic production and creates further gains from trade
What can the pattern of absolute and comparative advantage be identified through?
- absolute dollar cost of producing two goods in two countries
- The amount of output of two goods that can be produced from available resources
If costs vary with the level of output, or as experience is acquired via specialization, ___ gains are possible
additional
In industries with significant scale economies, small countries that do not trade will have ___ levels of output and ___ costs
low
high
With international trade, small countries can produce for the large global market and produce at ___ costs
lower
What does international trade allow small countries to do?
It allows them to reap the benefits of scale economies
On which curve is the economy of scale shown?
On the slope of the LRAC curve
Learning by doing shifts the LRAC curve where?
Downwards
The shift downwards of the LRAC curve incorporates both what?
Economies of scale and learning by doing
What is described in Heckscher-Ohlin theory?
Countries have comparative advantages in the production of goods that use intensively the factors of production with which they are abundantly endowed
What is human capital?
People can acquire skills - human capital - that influence a country’s comparative advantage
If comparative advantage can be acquired, it can also be ___
lost
