10.2 Trade NEW

Question 1

absolute advantage

Answer 1

a country has an aa if it can produce more of a good than other countries from the same resources

Question 2

Specialisation with an absolute advantage leads to a net output gain and an improved economic welfare.

Answer 2

net output gain and an improved economic welfare.

Question 3

comparative advantage

Answer 3

this is measured in terms of opportunity cost. The country with the least opportunity cost when producing a good possesses a comparative advantage in that good.

Question 4

2 Factors that have to be taken into account to translate output gains into gains from trade

Answer 4

No additional costs for transport and admin

Inhabitants of the country actually want to trade and buy the other country’s shit

Question 5

Assumptions underlying the principle of comparative advantage

Answer 5

Factors of Production are immobile and fixed between two countries, constant returns to scale and demand and costs conditions are stable
(resource trap resulting from an over reliance on producing a certain good)

Question 6

Three main tools of protectionism

Answer 6

Tariffs, quotas and subsidies