Comparative Advantage and Gains from Trade - AP Macroeconomics

$Opportunity cost = \frac{4 \text{ TVs}}{1 \text{ car}} = 4 \text{ TVs per car}$. Shows what must be sacrificed to produce one additional car.

It enhances efficiency and output. Focusing on comparative advantage increases overall productivity.

Trade can expand consumption possibilities. Allows consumption beyond domestic production possibilities.

The PPF shifts outward. Greater resource availability expands production possibilities.

A decrease in available resources. Natural disasters, wars, or resource depletion reduce capacity.

Specialization reduces production costs. Economies of scale and expertise reduce per-unit costs.

The country with the lower opportunity cost in coffee. Comparative advantage is determined by relative opportunity costs.

Lower opportunity cost gives comparative advantage. The basis for determining which good to specialize in.

A change in resource availability or technology. Changes in productive capacity due to external factors.

$Opportunity cost = \frac{4 \text{ TVs}}{1 \text{ car}} = 4 \text{ TVs per car}$. Shows what must be sacrificed to produce one additional car.

Ability to produce more of a good using fewer resources. Measured in total output per unit of input.

Ability to produce a good at a lower opportunity cost. Measured by what must be given up to produce one more unit.

$Opportunity Cost = \frac{\text{Loss in Output A}}{\text{Gain in Output B}}$. Shows the trade-off ratio between two goods in production.

Comparative advantage underlies gains from trade. Countries benefit by specializing in their lowest opportunity cost good.

A curve showing maximum attainable combinations of goods. Represents the production constraint given available resources and technology.

Comparative advantage explains why countries trade. Each country specializes in goods with lower opportunity costs.

Trade improves global resource allocation. Resources flow to their most efficient uses globally.

Specialization reduces production costs. Economies of scale and expertise reduce per-unit costs.

The benefits from specialization and exchange. Countries benefit mutually when they trade based on comparative advantage.

The PPF shifts inward. Technological decline reduces the economy's productive capacity.

It boosts global efficiency and trade. Enables countries to specialize and increase overall world output.

The country with the lower opportunity cost in coffee. Comparative advantage is determined by relative opportunity costs.

Trade does not shift a nation's PPF. Trade affects consumption possibilities, not production capacity.

It enhances efficiency and output. Focusing on comparative advantage increases overall productivity.

$Opportunity cost = \frac{2 \text{ pens}}{1 \text{ book}} = 2 \text{ pens per book}$. Demonstrates the sacrifice needed to produce one additional book.

A lower opportunity cost in producing a good. Must sacrifice less of other goods to produce this good.

Mutual gains from trade. Both trading partners benefit from specialization and exchange.

It helps in choosing the next best alternative. Compares the value of alternatives when making economic choices.

Trade allows for consumption beyond PPF. Trade enables access to goods beyond domestic production limits.