Principles of Microeconomics, 10e Chapter 3: Interdependence and the Gains from Trade

Flashcards covering key vocabulary from Chapter 3: Interdependence and the Gains from Trade.

Production Possibilities Frontier (PPF)

Various mixes of output that an economy can produce.

Absolute Advantage

The ability to produce a good using fewer inputs than another producer.

Opportunity Cost

Whatever must be given up to obtain some item.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than another producer.

Gains from Trade

Increased total production in an economy and expanded consumption opportunities resulting from specialization based on comparative advantage.

Specialization

Focusing production on goods and services in which one has a comparative advantage, leading to gains from trade.

Imports

Goods produced abroad and sold domestically.

Exports

Goods produced domestically and sold abroad.

Economic Interdependence

The reliance of individuals and countries on each other for goods and services, often facilitated by trade.

Principle of Comparative Advantage

Each good should be produced by the country with the smaller opportunity cost of producing that good.