Interdependence and the Gains from Trade

Vocabulary flashcards covering core economic terms and concepts regarding trade, comparative advantage, and interdependence.

Absolute Advantage

The comparison among producers of a good according to their productivity, where the producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage.

Opportunity Cost

Whatever must be given up to obtain an item.

Comparative Advantage

The comparison among producers of a good based on their opportunity cost, where the producer who has the lower opportunity cost of producing a good is said to have a comparative advantage.

Production Possibilities Frontier

A graph that shows the various mixes of output that an economy or individual can produce given available resources and technology.

Consumption Possibilities Frontier

The combinations of goods and services that an economy can consume; without trade, an economy's consumption possibilities frontier is identical to its production possibilities frontier.

Imports

Goods produced abroad and sold domestically.

Exports

Goods produced domestically and sold abroad.

David Ricardo

A nineteenth-century economist who developed the principle of comparative advantage, showed how England and Portugal could both gain from specializing and trading wine and cloth, and opposed the British Corn Laws.

Corn Laws

British laws that restricted grain imports, which were opposed by economist David Ricardo.

Market

A group of buyers and sellers of a particular good or service.