4.1.2 Specialisation and Trade

Question 1

What is an absolute advantage?

Answer 1

The ability to produce a good more with the same level of factors of production

Question 2

What is a comparative advantage?

Answer 2

When as economy has an absolute advantage in the production of both goods

Question 3

What are the advantages of specialisation of trade?

Answer 3

• greater variety of good and services
• lower average costs
• goods of higher quality

Question 4

What are the disadvantages of specialisation of trade?

Answer 4

• countries may become over dependent on the exportation of one specific good
• structural unemployment