Comparative Advantage and Trade Concepts

Mr. Clifford introduces the concept of international trade and comparative advantage, using a scenario involving the United States and China producing planes and toys. He explains absolute advantage and how countries should specialize based on comparative advantage to benefit from trade. The video also covers the terms of trade, illustrating how both countries can agree on a beneficial exchange rate for goods, ensuring each country gains from the trade.

What is the main reason people and countries engage in trade?

• To avoid learning new skills

• To specialize in what they are best at and trade for other needs

• To increase their population

• To reduce their economic output

What does it mean when a country has an absolute advantage?

• It has more natural resources

• It has a larger population

• It can produce goods at a lower opportunity cost

• It can produce more of all goods than another country

How do you calculate the per unit opportunity cost?

• By multiplying the number of units produced by the cost per unit

• By dividing the number of units lost by the number of units gained

• By adding the number of units lost and gained

• By dividing the total cost by the number of units produced

Which country has a comparative advantage in producing planes in the given scenario?

• The United States, because it produces fewer toys

• China, because it has a higher opportunity cost

• The United States, because it has a lower opportunity cost

• China, because it produces more planes

What is the benefit of countries specializing and trading according to comparative advantage?

• They can produce all goods more efficiently

• They can obtain goods at a lower opportunity cost

• They can reduce their economic output

• They can increase their population

What is a realistic terms of trade between the US and China for planes and toys?

• One plane for six toys

• One plane for four toys

• One plane for two toys

• One plane for ten toys

Why would China not accept a trade of one plane for ten toys?

• Because it does not need planes

• Because it can produce planes by sacrificing only five toys

• Because it prefers to produce toys

• Because it has a higher opportunity cost for toys

What range of toy numbers would benefit both the US and China in trade?

• Between one and three toys

• Between four and six toys

• Between three and five toys

• Between two and four toys

What is the main concept that explains why countries benefit from trade?

• Comparative advantage

• Absolute advantage

• Population growth

• Resource abundance

What is the key takeaway from the concept of comparative advantage?

• Countries should focus on increasing their population

• Countries should avoid trade to maintain independence

• Countries should specialize and trade to be better off

• Countries should produce everything themselves