Principles of Macroeconomics - Interdependence and the Gains from Trade

These flashcards cover key vocabulary and concepts regarding economic interdependence, trade, and comparative and absolute advantage as discussed in Mankiw's Principles of Macroeconomics.

Economic Interdependence

The reliance of people and nations on goods and services produced by others.

Absolute Advantage

The ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group.

Comparative Advantage

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

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen.

Imports

Goods produced abroad and sold domestically.

Exports

Goods produced domestically and sold abroad.

Production Possibilities Frontier (PPF)

A graph showing the maximum combinations of goods that can be produced in a given economy with available resources.

Gains from Trade

The increased output and consumption that arise when countries specialize in the production of goods for which they have a comparative advantage.

Specialization

The process of focusing on a particular activity or area of production to increase efficiency.

Trade Benefits

The advantages gained by countries when they engage in the exchange of goods and services.