Exchange & Comparative Advantage

These flashcards cover key terms and concepts related to exchange and comparative advantage as outlined in the lecture notes.

Caveat

A warning or proviso of specific stipulations, conditions, or limitations.

Pareto Improving Exchange

An exchange that makes at least one participant better off without making anyone worse off.

Bilateral Trade

Exchange involving two parties or agents.

Autarky

A no-trade situation synonymous with self-sufficiency.

Edgeworth Box

A graphical tool representing all possible outcomes of exchange between two agents.

Marginal Rate of Substitution (MRS)

The rate at which a consumer is willing to give up one good for another good while maintaining the same level of utility.

Contract Curve

The set of all Pareto efficient allocations in the Edgeworth box.

Core

The part of the contract curve that is better than the initial endowment for both agents.

Perfect Competition

A market structure where many firms offer a homogeneous product.

Production Possibility Frontier (PPF)

A curve showing all the maximum output possibilities for two goods that can be produced with available resources.

Marginal Rate of Transformation (MRT)

The rate at which one good must be sacrificed to produce another good.

Comparative Advantage

The ability of an agent to produce at a lower opportunity cost than another agent.

Absolute Advantage

The ability of an agent to produce more of a good or service with the same amount of resources than another agent.

Self-Sufficient

Not requiring any external assistance in satisfying one's basic needs.

Welfare

The health, happiness, and fortunes of a person or group.

Indifference Curve

A graph showing a combination of two goods that give the consumer equal satisfaction and utility.

Utility

A measure of satisfaction or pleasure derived from consuming goods and services.

Trade

The action of buying and selling goods and services.

Resource Constraints

Limitations on the availability of resources.

Redistribution

The distribution of income, wealth, or resources among different individuals or groups.

Agent

An individual or entity that can make decisions and take actions.

Free Lunch

An economic term indicating that something can be obtained at no cost.

Endowment

The initial bundle of goods or resources owned by an agent.

Inequality

The unequal distribution of resources or opportunities among individuals or groups.

Negatively Sloped PPF

Indicates the trade-off between two goods where producing more of one good requires sacrificing some of the other.

Economic Agents

Individuals or entities that make economic decisions.

Exchange Opportunities

The potential trades available in a market that can lead to increased welfare.