ECO100Y5 Lecture Notes - Lecture 1: Absolute Advantage, Comparative Advantage, Opportunity Cost

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33. 1 the gains from trade open economy an economy that engages in international trade closed economy an economy that has no foreign trade. Without trade, everybody must be self-sufficient; with trade, people can specialize in what they do well and satisfy others needs by trading. The gains from trade with variable costs economies of scale. 34. 1 free trade or protection? tariff a tax applied on imports of goods or services. Non-tariff barriers (ntbs) restrictions other than tariffs designed to reduce imports. The case of free trade free trade makes the country as a whole better off, even though it may not make every individual in the country better off. Economics a tariff and quota may lead to the same reduced volume of exports, the tariffs permits some surplus to be captured by the importing country, whereas the quota allows some surplus to be captured by the exporting country.

Related Questions

The law of comparative advantage states that:

a. each country should specialize in producing the good with the lowest opportunity cost.

b. a country that is able to produce something using fewer resources than other countries would gain from specialization and trade.

c. international trade barriers slow the introduction of new goods and better technologies.

d. countries can gain from trade if production is subject to economies of scale.

e. countries must agree on how much of one good exchanges for another.

turquoiseferret638

Discuss and explain the difference between the two.

The principle upon which Adam Smith first claimed that free trade benefits all countries. It holds that a country benefits from trade when it produces a particular good at a lower cost (in terms of labor input) than it costs to produce the good in any other country. By specializing the in the production and export of this good and importing goods whose production costs are higher than in other countries, the country can consume more of both goods. In trade theories, this principle was later replaced by the principle of comparative advantages.

Comparative Advantage is first fully stated by David Ricardo in the early nineteenth century, this concept holds that a country has a comparative advantage in a good if it can produce that good more cheaply than it can produce other goods. By specializing in the production of goods in which it holds a comparative advantage and importing the other goods, the country can consume more of all goods. In contrast to Adam Smith, therefore, this principle states that a country need not have an absolute advantage in any good to benefit from trade. The principle provides a powerful justification for liberal international trade by asserting that all countries benefit from such trade.

skybee160

what is a key factor that determines a firm's profitability?

A differentiation of a firm's product from other products

B factors affecting a firm's entire market

C a firm's average cost of production relative to that of competing firms

D chance events

E all of the above

economic theory suggests countries benefit from international trade by producing more of those good and services for which they have a comparative advantage (and less of that for which a country does not have a comparative advantage). However, countries rarely specialize completely, why?

even with international trade, countries rarely specialize completely because

A, all goods and services can be traded internationally

B, some countries would lose as a result of free trade

C, consumers in different countries have homogeneous tastes

D, some countries do not have an absolute advantege producing anything

E, production of most goods involves increasing opportunity costs.

ECO100Y5 Lecture Notes - Lecture 1: Absolute Advantage, Comparative Advantage, Opportunity Cost

ECO100Y5 Full Course Notes

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