How does specialization lead to increased efficiency?
When countries focus on their comparative advantage, global production increases, and resources are used more efficiently.
How does comparative advantage lead to higher living standards?
More goods and services are available at lower costs, increasing consumption and overall well-being.
Country A can produce 20X or 10Y. Country B can produce 15X or 5Y. Who has comparative advantage in X?
Country A. Country A's opportunity cost of producing X is 0.5Y, while Country B's is 0.33Y.
If Country A's opportunity cost of 1X is 2Y, and Country B's opportunity cost of 1X is 3Y, who has comparative advantage in X?
Country A has a comparative advantage in good X because it gives up less Y to produce X.
What is the key difference between absolute and comparative advantage?
Absolute advantage is about being the best producer, while comparative advantage is about having the lowest opportunity cost.
Which is more important for trade: absolute or comparative advantage?
Comparative advantage is more important because it determines specialization and the gains from trade.
Compare output and input problems.
Output problems maximize production with fixed resources; input problems minimize resources for fixed production.
What is 'trade'?
The exchange of goods and services.
What is 'specialization'?
Focusing on producing what you're best at.
What is 'opportunity cost'?
The value of the next best alternative you give up when making a choice.
Define absolute advantage.
The ability to produce more of a good/service than competitors using the same resources.
Define comparative advantage.
The ability to produce a good/service at a lower opportunity cost than another producer.
What is an output problem?
Focuses on how much can be produced with a given set of resources.
What is an input problem?
Focuses on how much of a resource is needed to produce a given amount of output.
