Podcast
Questions and Answers
Country A has an absolute advantage for producing which fruit?
Country A has an absolute advantage for producing which fruit?
- Kiwis
- Oranges
- Strawberries (correct)
- Bananas
In a two-good market, a country can only have an absolute advantage in one good.
In a two-good market, a country can only have an absolute advantage in one good.
False (B)
The concept illustrated by Country A specializing in kiwis and Country B specializing in oranges is called what?
The concept illustrated by Country A specializing in kiwis and Country B specializing in oranges is called what?
the gains of trade
What does comparative advantage consider regarding production costs?
What does comparative advantage consider regarding production costs?
What occurs when both Country A and Country B increase their production of strawberries and kiwis respectively?
What occurs when both Country A and Country B increase their production of strawberries and kiwis respectively?
How can a nation achieve trade benefits using opportunity cost?
How can a nation achieve trade benefits using opportunity cost?
In intra-industry trading, firms can often control the entire value chain for their product.
In intra-industry trading, firms can often control the entire value chain for their product.
What relationship exists between economies of scale and intra-industry trade?
What relationship exists between economies of scale and intra-industry trade?
Tariffs decrease the price of imported goods, which increases demand.
Tariffs decrease the price of imported goods, which increases demand.
What is a benefit of reducing barriers to international trade?
What is a benefit of reducing barriers to international trade?
Flashcards
Absolute Advantage
Absolute Advantage
The ability of a country to produce a good or service using fewer resources than another country.
Comparative Advantage
Comparative Advantage
The ability of a country to produce a good or service at a lower opportunity cost than another country.
Gains of Trade
Gains of Trade
The mutual benefits that arise when countries specialize in producing goods and services in which they have a comparative advantage and trade with each other.
Opportunity Cost
Opportunity Cost
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Intra-Industry Trade
Intra-Industry Trade
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Economies of Scale
Economies of Scale
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Tariff
Tariff
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Reducing Barriers to Trade
Reducing Barriers to Trade
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Specialization in Trade
Specialization in Trade
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Two-Good Market
Two-Good Market
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Study Notes
Absolute Advantage
- Country A has an absolute advantage in strawberry production due to favorable climate and a large, knowledgeable labor force, producing 80,000 baskets.
- Country B, with shorter summers and less trained agricultural workers, produces only 30,000 baskets of strawberries.
Trade Basics
- A myth in trade is that a country can only have an absolute advantage in one good; this is not true.
- Specialization enhances consumption; countries can consume more goods through trade than through self-sufficiency, exemplified by Countries A and B trading kiwis and oranges.
Comparative Advantage
- Comparative advantage focuses on opportunity costs in production, answering "What are the trade-offs of producing this good?"
- Mutual benefits in trade arise when each country specializes in goods where they have a comparative advantage, allowing for increased production and consumption.
Opportunity Cost in Trade
- Nations achieve trade benefits by focusing on goods with the lowest opportunity cost and trading for goods where they lack comparative advantage.
Intra-Industry Trade
- Intra-industry trading allows firms to manage entire value chains, but it is false that this is always the case.
- Intra-industry trade fosters competition and diversity in markets, counteracting tendencies for fewer firms and products caused by economies of scale.
Tariffs and Trade Barriers
- Tariffs increase import prices, leading to decreased demand for imported goods.
- Lowering international trade barriers promotes specialization, which enhances worker productivity and overall economic efficiency.
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Description
Test your understanding of microeconomic concepts discussed in Chapter 19. This quiz covers topics like resource allocation and comparative advantage using examples from different countries' agricultural capabilities. Challenge yourself with flashcards on key concepts!
