a) Absolute and comparative advantage

• What effect does international trade have on prices and the variety of goods/services available to a nation?

  It decreases prices and increases the variety of goods/services.
• How does international trade impact the standard of living?

  It results in a higher standard of living.
• Who developed the theory of comparative advantage and in what year?

  David Ricardo in 1817.
• What does the theory of comparative advantage state?

  A country should specialize in goods/services it can produce at the lowest opportunity cost.
• What is the result of a country specializing in production according to comparative advantage?

  The volume of production increases.
• What can be done with excess production from specialization?

  It can be exported.
• What can countries do with goods/services that are not produced domestically?

  They can be imported.
• What is absolute advantage?

  It occurs when a country can produce a product using fewer factors of production than another country.
• Can a country have absolute advantage without having comparative advantage?

  Yes, a country may have absolute advantage but still not have comparative advantage.
• In what type of goods/services should a country produce if it has comparative advantage?

  Goods/services in which it has comparative advantage.