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ch3 - ←-imports goods produced abroad and sold...

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Chapter 3: Interdependence and Gains from Trade  -the rate at which society could trade one good for the other depends on the amounts produced -absolute advantage- ability to produce a good using fewer inputs than other producer -comparative advantage- ability to produce a good at lower opportunity cost -possible for 1 person to have absolute advantage in both goods but not comparative -when a person specializes in producing good w/ comparative advantage, total production in economy rises -in order to trade, the price must lie between two opportunity costs -trade can benefit everyone in society b/c it allows people to specialize in activities in which they have a comparative advantage -Adam Smith and David Ricardo support free trade
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Unformatted text preview: ←-imports- goods produced abroad and sold domestically ←-exports- goods produced domestically and sold abroad ←-good should be produced by the country that has the smaller opportunity cost for that good ← ex. Japan/US can produce same amt of cars, American produce more food; Japan should produce more cars ←-Interdependence and trade are desirable because they allow everyone to enjoy a greater quantity and variety of goods and services demand curve- tells us how many units consumers are willing and able to buy at various prices supply curve- how many units producers are willing and able to sell shortage- at a price, demand > supply, buyers>sellers 28/08/2007 19:22:00 ← 28/08/2007 19:22:00 ←...
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