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Questions and Answers
When one nation can produce a product at lower cost relative to another nation, it is said to have a(n) __________________ in producing that product.
When one nation can produce a product at lower cost relative to another nation, it is said to have a(n) __________________ in producing that product.
absolute advantage
The idea behind comparative advantage reflects the possibility that one party?
The idea behind comparative advantage reflects the possibility that one party?
may be able to produce something at a lower opportunity cost than another party.
The opportunity cost of one bushel of wheat in India is?
The opportunity cost of one bushel of wheat in India is?
4 yards of textiles.
Which of the following characteristics relate to splitting up the value chain?
Which of the following characteristics relate to splitting up the value chain?
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What is meant by comparative advantage?
What is meant by comparative advantage?
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A nation can have a comparative advantage in the production of every good.
A nation can have a comparative advantage in the production of every good.
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According to international trade theory, a country should?
According to international trade theory, a country should?
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The concept of __________________ means that as the measure of output goes up, average costs of production decline.
The concept of __________________ means that as the measure of output goes up, average costs of production decline.
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The reasons that nations trade includes the fact that?
The reasons that nations trade includes the fact that?
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The opportunity cost of producing a pair of pants in the USA is 5 bushels of wheat, while in China, it is 2 bushels of wheat. As a result?
The opportunity cost of producing a pair of pants in the USA is 5 bushels of wheat, while in China, it is 2 bushels of wheat. As a result?
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The slope of the production possibility frontier is determined by the ________________ of expanding production of one good.
The slope of the production possibility frontier is determined by the ________________ of expanding production of one good.
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Colombia produces coffee with less labor and land than any other country; it therefore necessarily has?
Colombia produces coffee with less labor and land than any other country; it therefore necessarily has?
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From the data, the USA?
From the data, the USA?
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Which of the following refers to when many of the different stages of producing a good happen in different geographic locations?
Which of the following refers to when many of the different stages of producing a good happen in different geographic locations?
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What term is used to describe when one nation can produce a product at lower cost relative to another nation?
What term is used to describe when one nation can produce a product at lower cost relative to another nation?
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The underlying reason why trade benefits both sides of a trading arrangement is rooted in the concept of __________________.
The underlying reason why trade benefits both sides of a trading arrangement is rooted in the concept of __________________.
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When nations increase production in their area of _________________ and trade with each other, both sides can benefit.
When nations increase production in their area of _________________ and trade with each other, both sides can benefit.
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Intra-industry trade between similar trading partners allows the gains from?
Intra-industry trade between similar trading partners allows the gains from?
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Alland has an absolute advantage in producing food but will not trade with Georgeland. Which of the following is true?
Alland has an absolute advantage in producing food but will not trade with Georgeland. Which of the following is true?
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Some nations that seek to produce all of their own needs face the problem that?
Some nations that seek to produce all of their own needs face the problem that?
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Study Notes
Absolute Advantage
- Absolute advantage occurs when one nation can produce a product at a lower cost than another nation.
- Colombia has an absolute advantage in coffee production due to lower labor and land usage compared to others.
Comparative Advantage
- Comparative advantage arises when one party can produce a good at a lower opportunity cost than another party.
- A nation should focus on producing goods where it has the greatest productivity advantage and trade for others.
Opportunity Cost
- Opportunity cost represents what is sacrificed to produce an additional unit of a good.
- In India, the opportunity cost of producing one bushel of wheat is 4 yards of textiles.
Value Chain and Trade
- Splitting up the value chain refers to the production stages occurring in different geographic locations.
- Trade benefits arise from nations specializing in their areas of comparative advantage and exchanging goods.
Economies of Scale
- Economies of scale describe the phenomenon where average production costs decline as output increases, at least up to a point.
International Trade Theory
- A country should import goods in which it has a comparative disadvantage to maximize overall efficiency.
- Mutual gains from trade occur when a country exports goods it produces efficiently, such as the USA exporting wheat to China in exchange for pants.
Production Possibility Frontier
- The slope of the production possibility frontier is determined by the opportunity cost of producing one good in terms of the other good given up.
Intra-Industry Trade
- Intra-industry trade involves similar trading partners that allows firms and workers to specialize, leading to gains from learning and innovation.
Self-Sufficiency Issues
- Nations aiming for complete self-sufficiency may encounter inefficiencies, as some industries may be too small to operate efficiently without access to larger markets.
Trade Relationships
- Alland has an absolute advantage in food production compared to Georgeland, but it may not engage in trade despite the advantages.
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Description
Test your understanding of key concepts from Chapter 20 in Macroeconomics. This set of flashcards covers important terms like absolute advantage and comparative advantage, providing definitions for each. Perfect for reviewing essential economic theories and enhancing your grasp of trade principles.
