Exam 2: Comparative Advantage: How Nations Can Gain From International Trade

If technology improves or the amounts of available resources increase, the:

The points at which a country-s production possibilities frontier touches each of the coordinate axes measure:

Without trade, the production possibilities frontier also depicts a nation-s consumption possibilities.

The opportunity cost of producing an additional unit of an item typically decreases as the more units of that item are produced.

If one nation-s production possibilities frontier is always located inside another country-s production possibilities frontier, then the two nations may nevertheless experience gains from international trade.

Absolute advantage is the term for a situation in which engaging in international trade redistributes more income from one industry to another than is the case in other countries.

Gains from trade occur for an individual nation when international trade results in:

A redistribution effect of international trade unambiguously involves:

After residents of two nations specialize in producing different items and engage in international trade, each country's economy's consumption possibilities are typically located at points outside their production possibilities frontiers.

The slope of a line tangent to a nation-s production possibilities frontier reflects the opportunity cost of producing more of the good on the vertical axis.

The slope of a line tangent to a country's production possibilities frontier measures the opportunity cost its residents incur when they opt to produce an additional unit of a good or service.

If a nation has an absolute advantage in producing a good:

The production possibilities frontier is __________ because, as more of a country's fixed resources are used to produce an item using the same technology, the opportunity cost of producing the item usually __________.

If there is international trade, then a nation's consumption possibilities are __________ its production possibilities.

Absolute advantage exists when residents of one country can produce a good or service at lower opportunity cost than residents of another country.

If the opportunity cost of producing an additional good is always the same to residents of a nation, no matter how many units they produce, the production possibilities frontier would be a convex curve.

Absolute advantage is required for residents of nations to gain from international trade.

In country A, the opportunity cost of producing 2,000 pounds of microprocessors is 4,000 tablet devices. In country B, the opportunity cost of 3,000 tablet devices is 4,000 pounds of microprocessors. Both countries can experience gains from trade if the exchange rate for a ton of cereal is 3 tablet devices per pound of microprocessors.

In country A, the opportunity cost of 50 flash drives is 100 e-books. In country B, the opportunity cost of 50 flash drives is 40 e-books. Country A has a comparative advantage in flash drive production.

Consider two nations, country A and country B, that produce goods X and Y. The production possibility frontiers for the two nations are graphed with units of good Y measured vertically and units of good X measured horizontally. At the two nation-s current points along their frontiers, the slope of a tangent line is steeper for country A than for country B. We can conclude that: