Comparative Advantage Explained

Mr. Clifford discusses international trade and comparative advantage from Hong Kong. He explains how individuals and countries specialize in producing goods and trade to benefit from lower opportunity costs. Using a scenario with the US and China, he illustrates absolute and comparative advantage, and how countries can benefit from trade. The video also covers terms of trade, showing how both countries can agree on beneficial trade terms. The key takeaway is understanding comparative advantage and how it leads to better outcomes through specialization and trade.

Why do individuals and countries choose to specialize in certain tasks or products?

• Because they have unlimited time and resources.

• To maximize their efficiency and trade for other needs.

• To avoid trading with others.

• To produce everything they need by themselves.

What is the term used when a country can produce more of a good than another country?

• Comparative advantage

• Trade surplus

• Absolute advantage

• Opportunity cost

How is the per unit opportunity cost calculated?

• By adding the number of units lost and gained.

• By dividing the number of units lost by the number of units gained.

• By dividing the total cost by the number of units produced.

• By subtracting the number of units gained from the number of units lost.

Which country should specialize in producing planes based on the given scenario?

• The country that produces fewer planes.

• The country that produces more toys.

• The country that gives up fewer toys per plane.

• The country that gives up more toys per plane.

What terms of trade would benefit both the US and China in the given example?

• One plane for 4 toys

• One plane for 2 toys

• One plane for 10 toys

• One plane for 6 toys