Chapter 3: Interdependency an the Gains from Trade

Absolute Advantage

The ability to produce a good using fewer inputs than another producer

Opportunity Cost

Whatever must be given up to obtain some item

Imports

Goods produced abroad and sold domestically

Exports

Goods produced domestically and sold abroad

Comparative Advantage

When a producer has a lower opportunity cost of producing something than another producer

The Principle of Comparative Advantage

Individuals, firms, regions, or nations can gain by specializing in the production of goods that they produce cheaply and exchanging them for goods they cannot produce at a low opportunity cost

Outsourcing

The practice of having workers in foreign lands perform tasks that have traditionally been performed by domestic workers

Tariff

A tax on an imported good

Trade Quota

Limit on the amount of an imported good

Embargo

Ban on an imported good

Product Standards

Rules about quality and safety of product

Trade Surplus

Value of exports exceed imports

Trade Deficit

Value of imports exceed exports