MODULE 3

Question 1

How does trade lead to gains for an individual or an economy?

Answer 1

Countries (firms or individuals) are better off when they each specialize in what they are good at and then trade because their production and consumption are both higher as a result (which equals more efficiency and revenue/profit)

Question 2

What is the difference between absolute advantage and comparative advantage?

Answer 2

Comparative, not absolute, advantage is the basis for mutual gain. It doesn’t matter whether it takes one entity more resources than another to produce; what matters is that the opportunity cost is lower for one entity than the other.

Question 3

How does comparative advantage lead to gains from trade in the global marketplace?

Answer 3

Comparative advantage allows for manufacturers in the global marketplace to specialize in what they are good at, which allows them to produce and consume more goods and services than they would have without trade. Reaching points above the production possibility frontier which were before not feasible.

Question 4

How is opportunity cost related to comparative advantage and specialization?

Answer 4

Trade is only willing if the “price” of the good each entity obtains in the trade is LESS than its own opportunity cost of producing the good domestically.

Question 5

DEFINE Gains from Trade

Answer 5

The mutual gains that individuals can achieve by specializing in doing different things and trading w/ one another.

Question 6

COMPARATIVE ADVANTAGE

Answer 6

The advantage conferred on an individual or country in producing a good or service if the opportunity cost of producing the good or service is lower for that individual or country than for other producers.

Question 7

Lesson 1:

Answer 7

Through specialization and trade, both countries produce more and consume more than if they were self-sufficient

Question 8

Lesson 2:

Answer 8

Often overlooked n real world arguments, each entity has a comparative advantage in something, and a comparative disadvantage at something.

Question 9

ABSOLUTE ADVANTAGE

Answer 9

The advantage conferred on an entity in an activity if the entity can do it better than others. A country w/ this advantage can produce MORE OUTPUT PER WORKER than other countries.