Patterns of trade and limits of comparative advantage

• According to the first theory discussed, what is absolute advantage in international trade?

  A country producing more with same resources
• What does absolute advantage imply about a country's productivity?

  The country is more productive than another
• What term do economists use for the raw cost of production for a country?

  Absolute cost of production
• Who challenged the absolute advantage theory in the early 19th century?

  David Ricardo
• What key concept did David Ricardo say was missing from the absolute cost theory?

  Opportunity cost
• What law did David Ricardo derive?

  Law of comparative advantage
• What is meant by the relative cost of production?

  The cost including opportunity cost
• What does the law of comparative advantage state a country should specialize in?

  Lower opportunity cost in production
• What is the first fundamental aspect of the law of comparative advantage?

  A country should specialize
• According to the law of comparative advantage, what should countries do after specializing?

  Engage in trade
• According to the text, is economic opportunity cost a cost?

  Yes, it is a cost
• What does relative cost imply is included in the cost?

  Opportunity cost
• According to the text, when does a country truly have the lowest cost of production?

  When it has lowest opportunity cost
• Is relative cost or absolute cost more important when considering comparative advantage?

  Relative cost
• When calculating opportunity cost, what is being written down in the table?

  What each country is giving up
• Does having an absolute advantage in all goods mean a country has a comparative advantage in all goods?

  No, it does not mean that
• What is stated as being mutually beneficial between countries?

  Trade
• Why does it make sense for Ghana to specialize in something and trade, even without an absolute advantage?

  Because they have a comparative advantage
• What tool is used to showcase comparative advantage on a diagram?

  Production possibility frontier
• When using a PPF, what are always on the axis?

  Two goods
• On a PPF diagram, what does connecting the two extremes represent?

  Trading possibilities
• According to the text, if you need to work out who's got a comparative advantage from PPFs or if you need to draw this diagram very quickly to show comparative advantage, what's the trick?

  Country with shallower PPF has advantage
• Which axis does the country with a shallower PPF have a comparative advantage for?

  The x-axis
• According to the text, what are the gains of specialization?

  Maximum output of goods produced
• For what does the other country have a comparative advantage?

  The y-axis
• What does the text claim happens to consumption possibilities when comparative advantage is exploited?

  Countries can consume beyond their PPFs
• According to the text, what happens to prices when countries exploit comparative advantage?

  Lowest prices
• What kind of efficiency is achieved when resources are transferred to the most efficient countries?

  Allocative efficiency
• According to the text, what is one potential source of a country's comparative advantage?

  High factor endowment
• What does allocative efficiency do with consumer demand?

  Satisfies as much as possible
• According to the text, where does China's comparative advantage in manufacturing stem from?

  Huge labor force
• According to the text, where does subsaharan African countries' comparative advantages in primary commodities in agriculture stem from?

  A high quantity of fertile soil
• According to the text, what is the skill-based way of getting a comparative advantage?

  High quality of factors
• According to the text, why does the UK have a comparative advantage with financial services?

  Highly skilled workforce
• According to the text, where does Japan have a comparative advantage in?

  AI and robotics
• According to the text, why does Germany have a comparative advantage with highend car production?

  High skill labor
• According to the text, is a country's comparative advantage permanent?

  No, it is not permanent