Comparative Advantage and Trade

Comparative Advantage

The ability of a country to produce a good or service at a lower opportunity cost than another country.

Specialization

The process by which individuals or nations focus on a narrow range of goods or services, enhancing efficiency and productivity.

Gains from Trade

The benefits that countries receive from engaging in international trade, leading to increased overall welfare and economic growth.

Absolute Advantage

The ability of a country to produce a good more efficiently than another country, utilizing fewer resources to achieve the same level of output.

Terms of Trade

An economic concept referring to the relative prices at which two countries trade goods or services.

Opportunity Cost

The value of the next best alternative that is foregone when making a decision to produce or trade a good.

Willingness to Sell

Refers to a situation where someone is prepared to sell an item at a price higher than their comparative advantage.

Willingness to Buy

Refers to a situation where someone is prepared to buy an item at a price lower than their opportunity cost.