Module 4: Comparative Advantage and Trade

Trade

the process of providing goods or services in exchange for other goods and services

Gains From Trade

the inherent concept that people get more from trade than what their output would be by attempting to be self-sufficient

Specialization

Different people focus on and engage in different tasks becoming better at one task than others.

Comparative Advantage

If one individual's opportunity cost is lower than anothers for the same good, they have an advantage in producation of that good or service.

Absolute Advantage

When one party can produce more output off all goods that other parties (with the same input), they have the advantage in production of all those goods and services.

Terms of Trade

The rate at which one good is exchanged for another.