AP®︎ Macroeconomics: Topic 1.3 Flashcards

Master key terms and definitions for Topic 1.3 of AP Macroeconomics – Comparative Advantage and Gains from Trade to help you prep for quizzes and the AP exam.

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Term

Absolute Advantage

Definition

The ability to produce more output with the same resources, or the same output with fewer resources.

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Absolute Advantage
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The ability to produce more output with the same resources, or the same output with fewer resources.

MKT-1.AMKT-1.A.1
Comparative Advantage
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The ability to produce a good or service at a lower opportunity cost than another producer.

MKT-1.AMKT-1.A.2
Opportunity Cost
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The amount of one good given up to produce one more unit of another good.

MKT-1.A
Output Problems vs. Input Problems
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Output compares goods produced from resources; input compares resources needed to produce one unit.

MKT-1.A
Determining Absolute Advantage in Output and Input Problems
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In output, choose the higher production; in input, choose the lower resource requirement.

MKT-1.AMKT-1.A.1
Determining Comparative Advantage in Output and Input Problems
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Find per-unit opportunity cost; in output use give up/gain, in input use gain/give up; lower cost wins.

MKT-1.AMKT-1.A.2
Specialization According to Comparative Advantage
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Each producer focuses on the good with the lower opportunity cost.

MKT-1.BMKT-1.B.1
Exports and Imports Under Comparative Advantage
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A country exports the good with lower opportunity cost and imports the good with higher opportunity cost.

MKT-1.BMKT-1.B.2
Terms of Trade
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The exchange ratio between goods that must fall between both producers’ opportunity costs.

MKT-1.BMKT-1.B.2
Gains From Trade
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Specialization and trade let producers consume beyond their own production possibilities curve.

MKT-1.BMKT-1.B.1