Carefully define the following terms and explain their importance to the study of economics

Question

a. specialization
b. absolute advantage
c. comparative advantage
d. quota
e. trade adjustment assistance

Answer 1

a. Specialization means that a country devotes its energies and resources to only a small proportion of the world's productive activities. If a country specializes, it will be able to increase total world production, although it will need to trade to obtain other goods and services.
b. A country is said to have an absolute advantage over another in the production of a particular good if it can produce that good using smaller quantities of resources than can the other country. If a country has absolute advantage in many products, then workers in that country can enjoy a high standard of living.
c. A country is said to have a comparative advantage over another in the production of a particular good relative to other goods it can produce if it produces that good least inefficiently as compared with another country. It is the existence of comparative advantage that is the basis for trade both between nations, and, on a smaller scale, between persons.
d. A quota specifies the maximum amount of a good that is permitted into a country from abroad per unit of time. The effects of a quota are higher price and lower quantity.
e. Trade adjustment assistance provides special unemployment benefits, loans, retraining programs, and other aid to workers and firms that are harmed by foreign competition. Many who advocate free trade also advocate aid for those in affected industries who may lose jobs or suffer bankruptcy, and call for a trade adjustment program to help the transition to new employment of resources.