36 International specialisation

Question 1

When does specialisation occur at a national level (2)

Answer 1

Occurs when countries concetrate on producing those products they are BEST AT MAKING and which are in HIGH GLOBAL DEMAND

Question 2

What is what countries are best at producing influenced by

Answer 2

Quantity and quality of factors of production

Question 3

Why should countries specialising at a national level have the appropriate factors of production?

Answer 3

If appropriate —> More efficient —-> lower avg cost

Question 4

Advantages of specialisation for consumers (3)

Answer 4

Lower prices
- Specialisation —-> more productive —-> higher output –> price may lower
- Firms enjoy EoS —-> pass on lower cost as lower price

Higher quality
- Specialisation results in repetition —> Firm develop skill and techniques —-> increase quality

Better standard of living
- Specialise and trade surplus with countries who specialise in other gods —> consumer enjoy greater variety of goods —> higher living standards

Question 5

Disadvantages of specialisation for consumers (3)

Answer 5

Monopoly power
- One country may have global market —> use power to restrict supply —> push up price

Lack of quality control
- if consumer buy product from foreign specialists –> firms may not follow the same health and safety standards —> consumer at risk

Potential supply side shocks - over-relliance on single supplier may mean problems may occur —> which makes the product unavailable

Question 6

Pros of specialisation for firms (2)

Answer 6

Economies of scale - firms produce on large scale —> take advantage of economies of scale like technical economies of scale

Exchange of information - specialisation means countries have to trade —> help firms exchange new mangagement ideas or information about new technology

Question 7

Cons of specialisation for firms (2)

Answer 7

overdependent on other country’s demand - Any adverse event (war, natural disaster) may impact demand meaning firms might lose profit

Overdependent on other country’s supply - As firm’s main suppliers are overseas, it is vulnerable to any adverse events that impact supply of raw materials from these countries

Question 8

Pros of specialisation for the economy (2)

Answer 8

Raise allocative efficiency - Allows country to produce the good that FoP is best suited for —> may raise real GDP

Consume outside its PPC - Once country established its specialisation, it will produce at a surplus —-> It can trade surplus for another country’s surplus —-> enjoy consumption of goods which it could never make —-> consume outside its ppc —-> increase living standards

Question 9

cons of specialisation for the economy (2)

Answer 9

over-reliance on just a few products - risky as, if demand from overseas fell, GDP would fall. There would also be structural unemployment, as the workers will be only trained in a limited number of field jobs

Lack of diversification - Specialisation means economy exposes itself to fewer revenue streams. If business cycle turns down, this lack of diversification can lead to structural unemployment and economic depression