1.4 comparative advantage

Why do people trade?

People trade to obtain goods and services that they do not produce themselves.

What would you have to go without if people didn't trade?

Everything you don’t produce yourself, including clothes, cars, cell phones, bananas, and healthcare.

What is the effect of limiting trade on people's choices?

Limiting trade would reduce choices and make people worse off.

What is the benefit of more access to trade?

More access to trade means more choices and a higher standard of living.

Per Unit Opportunity Cost Formula

Opportunity Cost / Units Gained.

What is the per unit cost of producing t-shirts if it costs $50 to produce 5 t-shirts?

$10 per shirt.

What is the per unit opportunity cost for each hat in terms of shirts given up?

1 hat costs 1/2 shirt.

What are the terms of trade?

The agreed upon conditions that would benefit both countries.

Give an example of terms of trade.

Trade 1 ton of wheat for 1.5 tons of sugar.