Trade and Tariffs

Microeconomics Lecture 10

Absolute advantage

The ability to produce more of a good or service than a competitor using the same resources

Reminder* The opportunity cost of a good or service is…

what must be given up to acquire it

Comparative advantage

the ability to produce a good at a lower opportunity cost than competitors

True or False? No country can have a comparative advantage in the production of all goods

True

Autarky

a situation where a country does not trade with the world

Specialization

Each country allocates more resources toward producing what they are best at (and has the lowest opportunity cost)

Potential gain from specialization

There is now more of a good produced than when they operated under autarky

Countries/parties should specialize in the good they have ______ ______ in.

comparative advantage