Understanding Opportunity Cost and Comparative Advantage

Front

What does absolute advantage refer to?

Back

Producing more of a good using the same resources as another country.

Front

What is comparative advantage?

Back

The ability to produce a good at a lower opportunity cost than another country.

Front

Why might a country with an absolute advantage not produce everything?

Back

It benefits from specializing in producing goods with the lowest opportunity cost.

Front

What role do comparative and absolute advantage play in international trade?

Back

They help explain why countries specialize in certain goods.

Front

How does comparative advantage benefit a country?

Back

By allowing it to specialize in goods with the lowest opportunity cost.

Front

What is opportunity cost central to?

Back

Comparative advantage

Front

What does the United States specialize in according to the text?

Back

High-tech goods

Front

How does absolute advantage differ from comparative advantage?

Back

Absolute advantage is about producing more with the same resources, while comparative advantage is about lower opportunity cost.

Front

What is the main benefit of a country having a comparative advantage in a particular good?

Back

It can produce the good at a lower opportunity cost than other countries.

Front

How does specialization based on comparative advantage affect global trade?

Back

It increases efficiency and total output in the global market.