Interdependence and the Gains from Trade

These flashcards cover the key vocabulary related to the concepts of interdependence, trade, advantages, and economic production.

Interdependence

The reliance of individuals or nations on one another for goods and services.

Absolute Advantage

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

Comparative Advantage

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

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Exports

Goods produced domestically and sold abroad.

Imports

Goods produced abroad and sold domestically.

Gains from Trade

Benefits that countries receive from specializing in the production of goods in which they have a comparative advantage.

Production Possibilities Frontier (PPF)

A curve that depicts all maximum output possibilities for two or more goods.

Self-Sufficient

The ability of a country to meet its own needs without trade.

Specialization

The process of focusing on a specific task or product to improve efficiency.