Comparative advantage is the ability to produce a good or service at a lower opportunity cost compared to another individual or country.
Specialization and trade can benefit both parties under comparative advantage.
True
Steps to identify opportunity costs:
1️⃣ Consider two goods or services that can be produced
2️⃣ Determine how much of one good must be given up to produce another
3️⃣ The opportunity cost is the amount sacrificed
Match the concept with its definition:
Absolute Advantage ↔️ Produce more with the same inputs
Comparative Advantage ↔️ Produce at lower opportunity cost
The production possibilities curve (PPC) shows the maximum combinations of two goods an economy can produce given its available resources and technology.
The concave shape of the PPC reflects increasing opportunity cost as more of one good is produced.
Countries should specialize in producing goods where they have the lowest opportunity cost.
Match the advantage with its definition:
Absolute Advantage ↔️ Ability to produce more with the same inputs
Comparative Advantage ↔️ Ability to produce at a lower opportunity cost
What does the Production Possibilities Curve (PPC) illustrate?
Tradeoffs and opportunity cost
Gains from specialization and trade arise when countries focus on producing goods where they have a comparative advantage.
True
Specialization and trade enable both countries to increase their consumption, leading to higher overall welfare.
Comparative advantage is the ability of an individual or country to produce a good at a lower opportunity cost.
Match the type of advantage with its definition:
Absolute Advantage ↔️ Ability to produce more with the same inputs
Comparative Advantage ↔️ Ability to produce at a lower opportunity cost
Steps to identify opportunity costs:
1️⃣ Identify choices
2️⃣ Assess trade-offs
3️⃣ Calculate costs
Gains from specialization and trade occur when countries focus on goods where they have a comparative advantage.
True
Comparative advantage drives international trade and specialization in the real world.
True
Absolute advantage means producing at a lower opportunity cost.
False
What is opportunity cost defined as?
Next best alternative
Opportunity cost is irrelevant in determining comparative advantage.
False
Points inside the PPC represent efficient resource use.
False
What is the key difference between absolute and comparative advantage?
Opportunity cost
Steps to identify opportunity costs:
1️⃣ Consider two goods or services that can be produced
2️⃣ Determine how much of one good must be given up to produce another
3️⃣ The opportunity cost is the amount sacrificed
Comparing opportunity costs is the basis for determining comparative advantage.
The PPC demonstrates that to produce more of one good, the economy must sacrifice the production of the other good, with the amount sacrificed representing the opportunity cost.
Match the country with its specialization after trade:
Country A ↔️ Wheat
Country B ↔️ Cloth
Comparative advantage explains why countries should specialize in producing goods where they have the lowest opportunity cost.
True
Comparative advantage refers to the ability to produce more of a good with the same inputs as another country.
False
Opportunity cost is the value of the next best alternative given up when making a choice.
True
The position of the PPC reflects the economy's productive capacity.
True
Match the type of advantage with its definition:
Absolute Advantage ↔️ Ability to produce more with the same inputs
Comparative Advantage ↔️ Ability to produce at a lower opportunity cost
What does a point on the PPC indicate about production efficiency?
All resources fully utilized
A PPC further from the origin indicates lower productive capacity.
False
Specialization and trade under comparative advantage can benefit all parties involved.
True
Opportunity cost is the cost of the best alternative that is chosen when making a decision.
False
Arrange the characteristics of the Production Possibilities Curve (PPC) in a logical order:
1️⃣ Downward Sloping
2️⃣ Concave Shape
3️⃣ Reflects Productive Capacity
What is the combined total output of Country A and Country B without specialization and trade?
120 units
What is the key difference between comparative advantage and absolute advantage?
Opportunity cost
Comparative advantage explains why countries specialize in producing goods where they have the lowest opportunity cost
In comparative advantage, one party is relatively better at producing one good.