Exploring Absolute and Comparative Advantage in Trade

The video explains the concepts of absolute and comparative advantage in economics, using examples of Italy, Germany, and Luxembourg. It discusses the production possibility frontier (PPF) and opportunity costs, illustrating how countries can benefit from trade by specializing in goods where they have a comparative advantage. The video highlights the increase in global output and consumption when countries specialize and trade, demonstrating the benefits of comparative advantage.

What are the factors of production needed to produce goods and services?

• Resources, labor, capital, skills

• Land, labor, capital, entrepreneurship

• Land, labor, machinery, stock

• Technology, labor, capital, management

What does the production possibility frontier (PPF) illustrate?

• Maximum output that can be achieved with existing resources

• Profit maximization strategies for businesses

• Consumer demand and supply curves

• Economic growth over a period

If Italy specializes in olive production, how many cars can they trade for 60,000 tons of olives?

• 60,000 cars

• 30,000 cars

• 45,000 cars

• 75,000 cars

What is the opportunity cost of producing one car in terms of olives in Italy?

• One tonne of olives

• Three tonnes of olives

• Half a tonne of olives

• Two tonnes of olives

Which country has a comparative advantage in car production when comparing Italy and Luxembourg?

• Neither

• Both

• Italy

• Luxembourg

What would be a suitable trade rate of olives to cars between Italy and Luxembourg?

• One tonne of olives to half a car

• One tonne of olives to two cars

• One tonne of olives to one car

• One tonne of olives to three quarters of a car

How many extra cars does Italy receive by specializing and trading compared to their own production?

• 10,000 cars

• 20,000 cars

• 15,000 cars

• 5,000 cars

What additional benefit does Luxembourg gain from specializing in car production?

• 5,000 extra tonnes of olives

• 10,000 extra tonnes of olives

• 15,000 extra tonnes of olives

• 20,000 extra tonnes of olives

How does specialization based on comparative advantage affect global output?

• Increases output but decreases consumption

• Decreases output but increases consumption

• No impact on output or consumption

• Increases output and consumption

What is the total output of cars when both Italy and Luxembourg specialize according to their comparative advantages?

• 65,000 cars

• 50,000 cars

• 55,000 cars

• 60,000 cars