Summary for Chapter 3’Interdependence and the Gains from trade’
In this chapter, I learn how the economy coordinates the activities of individuals or nation. To make a better understand, I conclude the contents of this chapter with nine questions which answers are key to the modern global economy. 1. What are opportunity costs? Are they part of the economic way of thinking?
Opportunity costs ----the highest-valued alternative that must be forgone when a choice is made, are the forgone opportunities if the next best alternative. Choice means both gaining something and giving up something. When you choose one option, you forgo all others. The benefits of the next best alternative are the opportunity costs of your choice.
Opportunity costs are part of every decision and activity. Each choice means giving up something else. a. Opportunity costs are the benefits that are forgone as a result of a choice. When you choose one thing, you must give up—forgo—others. b. Opportunity costs are an individual concept but can be used to demonstrate scarcity and choice for a society as a whole. 2. What is comparative advantage?
Comparative advantage: the ability to produce a good or service at a lower opportunity cost than another producer.
Comparative advantage exists whenever one person (firm, region, or nation) will specialize in the production of the good or service that has the lowest opportunity cost. 3. Why does specialization occur?
Comparative advantage accounts for specialization. We specialize in the activities in which we have lowest opportunity costs, that is, in which we have a comparative advantage. 4. What is absolute advantage?
Absolute advantage: the ability to produce a good using fewer inputs than another producer. 5. How are these concepts similar? How are they different?
Comparative advantage means being able to