Key Concepts

absolute advantage, }>■ 54 comparative advantage, ;>• 55 exports, p- 5S

opportunity cost, p. 54 imports, p. 5$

to have a compamtiiv advantage The gains from trade are bawd on comparative advantage, not absolute advantage.

• Trade makes everyone better off because it allows people to specialize in those activities in which they have a comparative advantage.

• The principle of comparative advantage applies to countries as well as to people. Economists use the principle of comparative advantage lo advocate free trade among countries.

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