Macroeconomics Chapter 20 Flashcards

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.

absolute advantage

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?

4 yards of textiles.

Which of the following characteristics relate to splitting up the value chain?

When production stages are geographically dispersed. Signup and view all the answers

What is meant by comparative advantage?

The goods in which a nation has its greatest productivity advantage or its smallest productivity disadvantage. Signup and view all the answers

A nation can have a comparative advantage in the production of every good.

False Signup and view all the answers

According to international trade theory, a country should?

import goods in which it has a comparative disadvantage. Signup and view all the answers

The concept of __________________ means that as the measure of output goes up, average costs of production decline.

economies of scale Signup and view all the answers

The reasons that nations trade includes the fact that?

no one country produces all of what citizens within the country want. Signup and view all the answers

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?

there can be mutual gains from trade to the two countries if the USA exports wheat to China in exchange for pants. Signup and view all the answers

The slope of the production possibility frontier is determined by the ________________ of expanding production of one good.

opportunity cost Signup and view all the answers

Colombia produces coffee with less labor and land than any other country; it therefore necessarily has?

an absolute advantage in coffee production. Signup and view all the answers

From the data, the USA?

has an absolute advantage over India in the production of wheat. Signup and view all the answers

Which of the following refers to when many of the different stages of producing a good happen in different geographic locations?

Splitting up the value chain Signup and view all the answers

What term is used to describe when one nation can produce a product at lower cost relative to another nation?

absolute advantage Signup and view all the answers

The underlying reason why trade benefits both sides of a trading arrangement is rooted in the concept of __________________.

opportunity cost Signup and view all the answers

When nations increase production in their area of _________________ and trade with each other, both sides can benefit.

comparative advantage Signup and view all the answers

Intra-industry trade between similar trading partners allows the gains from?

learning and innovation. Signup and view all the answers

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. Signup and view all the answers

Some nations that seek to produce all of their own needs face the problem that?

some industries are too small to be efficient if restricted to their domestic markets alone. Signup and view all the answers

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.