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Questions and Answers
What is an open economy?
What is an open economy?
- An economy that has limited interaction with other economies
- An economy that interacts freely with other economies around the world (correct)
- An economy that does not interact with other economies in the world
- An economy that only interacts with specific countries
What is one of the benefits of international trade?
What is one of the benefits of international trade?
- It allows countries to specialize in producing goods and services in which they have a comparative advantage (correct)
- It leads to isolationism and protectionism
- It causes a decrease in living standards for all countries involved
- It restricts the variety of goods and services available to consumers
How does international trade impact living standards?
How does international trade impact living standards?
- It has no impact on living standards
- It lowers living standards for developing countries
- It can raise living standards in all countries (correct)
- It only impacts the living standards of developed countries
What is a closed economy?
What is a closed economy?
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What principle of economics highlights the benefits of trade?
What principle of economics highlights the benefits of trade?
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Study Notes
Open Economy
- An open economy is a type of economy that engages in international trade, allowing the free flow of goods and services across its borders.
Benefits of International Trade
- One of the benefits of international trade is that it allows countries to specialize in the production of goods and services in which they have a comparative advantage, leading to increased efficiency and productivity.
Impact of International Trade on Living Standards
- International trade can lead to an increase in living standards by providing access to a wider variety of goods and services, improving product quality, and reducing prices through increased competition.
Closed Economy
- A closed economy is a type of economy that does not engage in international trade, relying solely on its own domestic production to meet the needs of its citizens.
Principle of Economics
- The principle of comparative advantage highlights the benefits of trade, suggesting that countries should focus on producing goods and services in which they have a relative advantage, and trade with other countries to acquire the goods and services they need.
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