Absolute and Comparative Advantage

  1. The process of buying goods and services from the rest of the world (importing) and that of selling goods and services to the rest of the world (exporting).
    international trade
  2. Reasons for Trade
    • Differences in Factor endowments
    • Variety and quality of goods
    • Gains from specialization
    • Political reasons
  3. “Father of Modern Economics” and wrote “The Wealth of Nations”
    Adam Smith
  4. Advantages of greater output of goods & services when other nations cannot produce same amount of goods and services while utilizing same amount of resources
    absolute advantage
  5. He refer an examples as giving the Absolute advantage of English textile manufacture & the French world wide efficient wine Industry.
    Adam Smith
  6. Due to the having of favorable climate, good soils, accumulated expertise the _____ has the most efficient wine among the world. This indicate that the specialization on nation Advantage is more beneficial in today globalization worlds.
  7. A country has an _________ in the production of a good when it can produce more of that good than another country with the same resources.
    absolute advantage
  8. Said "A nation never supposed to produce goods and services which they can find more cheaper and qualitative from other nations."
    Adam Smith
  9. _________ in the production of goods and services in which they have an absolute advantages will help two different nation engaging on their trade.
  10. According to the absolute advantage theory, international trade is a _______ , because there are gains for both countries to an exchange.
  11. A famous economist named ________ came up with the law of comparative advantage.
    David Ricardo
  12. According to this law, specialization and free trade benefits all trading partners.
    law of comparative advantage
  13. Countries should specialize in those goods they have a comparative advantage in.
    law of comparative advantage
  14. The basis for all trade between individuals, regions, and nations.
    Comparative advantage
  15. The ability of a firm or individual to produce goods and/or services at a lower opportunity cost than other firms or individuals. It gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.
    comparative advantage
  16. (T/F) A person has a comparative advantage if s/he can produce something at a lower cost than others.
  17. Refers to a country’s ability to produce a certain good more efficiently than another country.
    Absolute advantage
  18. Refers to a country’s ability to produce a particular good with a lower opportunity cost than another country.
    Comparative advantage
  19. Refers to a country’s decision to specialize in the production of a certain good or list of goods because of the advantages it possesses in their production.
  20. Refers to what you sacrifice in making an economic choice. In this instance, it refers to the value of the goods you sacrifice in deciding to produce one good instead of another.
    Opportunity cost
Card Set
Absolute and Comparative Advantage
Last Semester