Answered: What is meant by the concept of "trade…

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter21: International Trade

Section: Chapter Questions

Problem 5QP

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What is meant by the concept of "trade creation"? a. Inefficient trade that follows the establishment of a free - trade area. b. Trade based on comparative advantage that typically follows the reduction of trade barriers. C. The opening up of new trading routes. d. Regional trade agreements. e. Increased exports and reduced imports as a result of a high-tariff policy.

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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