Explain the difference between comparative advantage and absolute advantage and which concept should be used to make trade decisions.
What will be an ideal response?
Comparative advantage refers to being able to produce something at a lower opportunity cost, whereas absolute advantage refers to being able to produce something using fewer resources. Trade is most productive when it is based on comparative advantage; that is, when each party produces and sells items that it can produce at a lower opportunity cost than its trading partner. By exchanging products based on comparative advantage, each partner achieves gains in the form of lower costs and wider variety of goods.
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Economies of scale occur when
a. long-run average total costs rise as output increases. b. long-run average total costs fall as output increases. c. average fixed costs are falling. d. average fixed costs are constant.
If you look for a job for eighteen months after graduation, but fail to generate an offer, even after lowering your expectations, the economy is probably in the business cycle phase called a:
A. recession. B. peak. C. boom. D. recovery.