CH 3: interdependence & gains from trade

Comparative advantage

the producer who gives up less of the other good to produce good X

Absolute advantage

the ability to produce a good using fewer inputs than another producer

Trade

can benefit everyone because it allows people to specialize in the activities in which they have a comparative advantage

For both parties to gain from trade

the price at which they trade must lie between their opportunity costs

Imports

goods produced abroad and sold domestically

Exports

produced domestically and sold abroad

Opportunity Cost

whatever must be given up to obtain some item