Global Trade Dynamics and Comparative Advantage in Economics

Mr. Clifford introduces international trade and comparative advantage, explaining how individuals and countries benefit from specialization and trade. Using a hypothetical scenario with the U.S. and China, he illustrates absolute and comparative advantage, and how to calculate per unit opportunity costs. The video concludes with a discussion on terms of trade, showing how both countries can benefit from trading at mutually beneficial terms.

What is the main reason individuals and countries engage in trade?

• To specialize in what they are best at and trade for other needs

• To avoid learning new skills

• To increase their absolute advantage

• To reduce the number of goods they produce

In the hypothetical scenario, which country has an absolute advantage in producing both planes and toys?

• Neither country

• United States

• China

• Both countries equally

What does the term 'absolute advantage' refer to?

• The ability to produce a good at a lower opportunity cost

• The ability to produce all goods needed

• The ability to produce more of a good with the same resources

• The ability to trade without restrictions

How is the per unit opportunity cost calculated?

• By adding the cost of all resources used

• By multiplying the number of units produced by the cost per unit

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

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

Which country has a comparative advantage in producing planes?

• Both countries

• Neither country

• United States

• China

What is the benefit of countries specializing and trading according to comparative advantage?

• They can trade without any opportunity cost

• They can avoid international trade

• They can obtain goods at a lower opportunity cost

• They can produce all goods themselves

Why would China not accept a terms of trade of one plane for ten toys?

• Because they prefer to trade with other countries

• Because they can produce planes at a lower opportunity cost

• Because they do not need planes

• Because they can produce toys at a lower cost

What terms of trade would benefit both the United States and China?

• One plane for ten toys

• One plane for two toys

• One plane for four toys

• One plane for six toys

What is the range of toys that would make trading one plane beneficial for both countries?

• Between two and four toys

• Between three and five toys

• Between one and three toys

• Between five and seven toys

What is the main concept illustrated by the example of trading planes and toys?

• Absolute advantage

• Trade barriers

• Comparative advantage

• Opportunity cost