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International Trade

Problems

Trade Basics

The Means of Trade

Problem : Why should countries trade?

If a country can produce a good for less than another country can, then the opportunity for advantageous trade exists and both countries could benefit.

Problem : Explain absolute advantage.

An absolute advantage occurs when one producer uses a smaller amount of inputs to produce a given amount of outputs than another producer.

Problem : Explain comparative advantage.

A comparative advantage occurs when a producer has a lower opportunity cost of production than other producers.

Problem : Who should produce goods when using trade advantages as criteria?

The producer with the absolute advantage or the producer with the comparative advantage should always produce.

Problem : What is an opportunity cost?

An opportunity cost is a way of describing what is given up when one choice is taken over another.

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