Terms and concepts

potential output
the level of output an economy can achieve when it is producing at full employment; when an economy is producing at its potential output, it experiences only its natural rate of unemployment, no more and no less.
growth trend	the straight line in the business cycle model, which is usually upward sloping and shows the long-run pattern of change in real GDP over time
positive output gap	the difference between actual output and potential output when an economy is producing more than full employment output; when there is a positive output gap, the rate of unemployment is less than the natural rate of unemployment and an economy is operating outside of its PPC.
negative output gap	the difference between actual output and potential output when an economy is producing less than full employment output; when there is a negative output gap, the rate of unemployment is greater than the natural rate of unemployment and an economy is operating inside its PPC.

Equilibrium without Trade	When an economy cannot trade in world markets, the price adjusts to balance domestic supply and demand. Consumer and producer surplus at equilibrium without trade.
World Price	the price of a good that prevails in the world market for that good
How do you tell whether a country will import or export a good?	-If the world price of a good is higher than the domestic price, the country will export the good. -If the world price of a goods lower than the domestic price, then the country will import the good.
How does the domestic price reflect the opportunity cost?	-It tells us how much a person must give up to obtain one unit of that good. -If the domestic price is low, the cost of producing the good is low. -If the domestic price is high, then the cost of producing the good is high.
What can we determine by comparing world and domestic price before trade?	-We can determine whether a country is better or worse at producing goods than the rest of the world.
When trade is allowed by a country what happens with sellers products?	-The domestic price rises of that good to equal the world price. No seller of a good would accept less than the world price, and no buyer would pay more than the world price.
Exporting Country	-Domestic equilibrium price before trade is below the world price
Importing Country	-Domestic equilibrium price before trade is above world price