ECON 111 Chapter Notes - Chapter 33: Factor Endowment, Absolute Advantage, Comparative Advantage
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ECON 111 Full Course Notes
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Open economy an economy that engages in international trade. Closed economy a(cid:374) e(cid:272)o(cid:374)o(cid:373)(cid:455) that does(cid:374)"t e(cid:374)gage i(cid:374) i(cid:374)ter(cid:374)atio(cid:374)al trade. Autarky a country that does not engage in foreign trade. Without trading, everyone would have to be self-sufficient; with trade, people can specialize in what they do well in and get other needs by trading. Gains from trade the increased output attributable to the specialization according to comparative advantage that is made possible by trade. Absolute advantage the situation that exists when one country can produce some commodity at lower absolute cost than another country. Comparative advantage the situation that exists when a country can produce a good with less forgone output of other goods than can another country. The gains from specialization and trade depend on a pattern of comparative advantage not absolute advantage. World output increases if countries specialize in the production of the goods in which they have a comparative advantage.