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EconomicsModule 6 of 8

International Trade

5

Concepts

1

Formulas

1

Decisions

3

Quiz Questions

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Key Concepts

5 concepts covered in this module.

Comparative Advantage

A country should produce goods where its opportunity cost is lowest. Even if one country is better at everything, both benefit from trade.

Absolute Advantage

Ability to produce a good using fewer resources. Less important than comparative advantage for determining trade patterns.

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Formulas

1 essential formulas for this module.

Terms of Trade

ToT = Export Price Index / Import Price Index × 100

Where: Improvement if ToT rises (exports become more valuable relative to imports)

Decision Frameworks

1 decision frameworks to guide your analysis.

Free trade vs Protectionism?

  • Free trade: maximizes global efficiency and consumer welfare
  • Protection: infant industries, national security, anti-dumping

Mind Map

Visual overview of how concepts connect in this module.

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Comparative Advantage

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Answer
A country should produce goods where its opportunity cost is lowest. Even if one country is better at everything, both benefit from trade.
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Capital Flows and the FX Market