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https://quizlet.com/_3ppktg

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allows for variety
specialization

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shows that people face trade offs

can also show consumption possibilities if there is NO trade

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...trade allows for specialization...

there is then MORE of each product even with the same input (time / amount of hours)

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compare inputs, such as TIME

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opportunity cost goes hand in hand with comparative advantage

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opportunity cost goes hand in hand with comparative advantage

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compare opportunity costs; whoever has the lowest has the comparative advantage, therefore they should specialization in producing that product

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Have absolute advantage in both goods? POSSIBLE. Have comparative advantage in both goods? IMPOSSIBLE

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Have absolute advantage in both goods? POSSIBLE. Have comparative advantage in both goods? IMPOSSIBLE

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gains from specialization and trade are BASED ON COMPARATIVE advantage

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gains from specialization and trade are BASED ON COMPARATIVE advantage

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price v. opportunity cost

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price at which parties trade must lie BETWEEN the 2 opportunity costs in order to be mutually advantageous

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specialization and trade from comparative advantage leads to higher quantity and variety of goods

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principle of comparative advantage shows that trade can make everyone better off

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principle of comparative advantage shows that trade can make everyone better off

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interdependence is desirable

everyone enjoys greater quantity and variety, duh

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opportunity cost of producing 1 lb cheese for US in terms of wheat:
costs 4 bushels

opportunity cost of producing 1 lb cheese for France in terms of wheat:
costs 2 bushels

opportunity cost of producing 1 bushel of wheat for US in terms of cheese:
costs 1/4 lb

opportunity cost of producing 1 bushel of wheat for France in terms of cheese:
costs 1/2 lb

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France has a lower opportunity cost for producing only cheese (2 < 4); therefore, they should specialize in making cheese and trade

US has a lower opportunity cost for producing only wheat (1/4 < 1/2); therefore, they should specialize in producing wheat and trade