AP Microeconomics Flashcards: Comparative Advantage and Trade
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Review key ideas with interactive flashcards. This set includes 11 cards to help you master important concepts.
Which type of advantage should be the basis for production specialization?
Production specialization should be based on comparative advantage, not absolute advantage, as this leads to exchange opportunities and gains from trade.
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Which type of advantage should be the basis for production specialization?
Production specialization should be based on comparative advantage, not absolute advantage, as this leads to exchange opportunities and gains from trade.
What is the primary benefit of specializing according to comparative advantage and then trading?
Specialization and trade lead to consumption possibilities that are beyond the original Production Possibilities Curve (PPC) for the trading partners.
Using a data table, how would you determine which producer has a comparative advantage?
You would calculate the opportunity cost for each producer to find who can produce a good or service at a lower opportunity cost.
Using a data table, how would you determine which producer has an absolute advantage?
You would identify the producer who can produce more of a good or service with the same quantity of resources.
How do you calculate mutually beneficial terms of trade?
Mutually beneficial terms of trade are calculated using the opportunity costs of each producer, which determine the range for exchange where trade can occur.
What is the relationship between opportunity cost and comparative advantage?
Comparative advantage is defined by opportunity cost; a producer has a comparative advantage if they can produce a good at a lower opportunity cost than another producer.
What are 'terms of trade'?
Terms of trade are the conditions for exchange under which mutually beneficial trade can occur, determined by comparative advantage and opportunity costs.
What determines the terms of trade for a mutually beneficial exchange?
The terms of trade are determined by comparative advantage and the opportunity costs of the producers involved in the exchange.
What is absolute advantage?
Absolute advantage is a situation where an individual, business, or country can produce more of a good or service than any other producer using the same quantity of resources.
Explain how specialization leads to gains from trade.
Specialization according to comparative advantage creates exchange opportunities, which, with appropriate terms of trade, can lead to gains from trade.
What is comparative advantage?
Comparative advantage is a situation where an individual, business, or country can produce a good or service at a lower opportunity cost than another producer.