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.
