2. What are absolute advantage and comparative advantage? Why will resources specialize according to their comparative advantages? Why will this specialization increase production? Why will specialization increase trade?
7. Who is counted as employed or unemployed in the unemployment statistics? What groups in society are not represented at all in the unemployment statistics (i.e., who is not a part of the civilian labor force)? How is the unemployment rate measured?
8. Describe the limitations of using Gross Domestic Product (GDP) as a measure of economic activity.
2. Absolute advantage occurs when one country can produce more of a product with the same amount of resources. Comparative advantage occurs when the opportunity cost of one good in terms of another differs between countries. Thus a country could have absolute advantage in all goods, but if it uses different amounts of resources to produce them, its comparative advantages will differ with those of other countries. It should specialize in those goods which have the lowest opportunity costs for it. This means that when it trades with a country that has lower opportunity costs in a different products, both countries will obtain more goods than they could have produced independently. This causes economic growth, enabling each country to buy more goods from the other and to produce more goods for the other.
7. The unemployment rate is based on the number of people over a certain age actively looking for work. If a person has sought employment in the last four weeks they are considered unemployed. It doesn't include "discouraged workers" who have given up looking for work. Those too young or too old to work are not considered part of the labor force, and thus are not considered ...