Economic Policies: Chapter 3

interdependence

rely on many people from around the world, most of which you’ve never met, to produce goods and services

imports

goods produced abroad and sold domestically

exports

goods produced domestically and sold abroad

absolute advantage

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

comparative advantage

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

buyers as a group

determine the demand for the product

sellers as a group

determine the supply of the product

competitive market

many buyers and many sellers, each has a negligible impact on market place

perfectly competitive market

all goods are exactly the same

price takers

so many buyers and sellers that no one can affect the market price

quantity demand

amount of a good that buyers are willing and able to purchase

law of demand

-when the price of a good rises, the quantity demanded of the good falls

-when the price falls, the quantity demanded rises

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

demand curve

a graph of the relationship between the price of a good and the quantity demanded

Gains from trade

arise from comparative advantage (differences in opportunity cost)