NU
ECON 1116 -
Chapter 3
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Principles of Microeconomics: Chapter 3Trade benefits everyone because it allows people to specialize in what they are good at. Absolute advantage: the producer who uses the least amount of inputs to produce a good. Opportunity cost measures the trade-off between two goods that a producer faces. Comparative advantage: the producer who gives up less of other goods to produce Good X has the smaller opportunity cost of producing Good Y. When each person specializes in producing the good for which he or she has the comparative advantage, total production in the economy rises. For both parties to gain from trade, the price at which they trade mustlie between the two opportunity
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