Explain how it is possible for one of two people in a two-good economy to have an absolute advantage in producing both goods, but trade can still benefit both people
What will be an ideal response?
One person, when she spends all of her time producing one good or the other, can produce more of either good than the other person. This person has an absolute advantage in producing both goods. However, gains from trade exist when the opportunity costs associated with each good are different for both people. If the costs of producing one good in terms of the forgone production of the other good differ for the two people, then they can gain from trade.
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Based on the data in the table above, the economy will be in short-run equilibrium at a price level of
A) 90. B) 110. C) 100. D) 120.
The difference between money and income is that
A) money is a flow and income is a stock. B) money is a stock and income is a flow. C) there is no difference—money and income are both stocks. D) there is no difference—money and income are both flows.