4.1.2 - Specialisation & Trade

Question 1

What Does International Trade Do?
(3 Points)

Answer 1

~ Decreases prices.

~ Increases the variety of goods and services available to a nation.

~ Results in a higher living standard.

Question 2

What Is Absolute Advantage?
(2 Points)

Answer 2

~ When a country is able to produce a product, using the same amount of FOPs than other countries.

~ Implies a country is more productive than another.

Question 3

What Is Comparative Advantage?

Answer 3

A country should specialise in producing goods and services, where they have a low opportunity cost in production, compared to others.

Question 4

Where Does Comparative Advantage Come From?

Answer 4

Q2 of CELL.

Question 5

Calculate The Opportunity Cost, Of This Table
(3 Points)

Answer 5

~ India should focus on computer production.

~ Ghana should focus on cotton production.

~ Each country should divert their FOPs, to specialise in either computer of cotton production.

Question 6

Show The Comparative On A Diagram
(2 Points)

Answer 6

~ Shallower PPF, means country has a comparative advantage of the x-axis.

~ Other countries has a comparative advantage of the y-axis.

Question 7

What Are The Assumptions & Limitations Of The Theory Of Comparative Advantage?
(4 Points)

Answer 7

~ Assumes there are no transport costs.

~ Perfect information.

~ Assumes constant returns to scale, doesn’t take into account EOS.

~ Doesn’t take into account non-price factors, when purchasing a product (Quality e.t.c).

Question 8

What Are The Advantages Of International Specialisation & Trade?
(5 Points)

Answer 8

~ Maximum output can be achieved, has all resources are being concentrated on it.

~ Lower prices, greater choice, greater Q2, greater competition.

~ AE, resources are transferred to this countries, who are the most efficient and producing that good.

~ Benefits From EOS.

~ Higher economic growth and improved living standards.

Question 9

What Are The Disadvantages Of International Specialisation & Trade?
(6 Points)

Answer 9

~ Over-dependence, increases exposure to external shocks.

~ Cause structural unemployment.

~ Environmental degradation, due to increased demand for resources.

~ Current account deficit, as some countries may import more resources.

~ Loss of sovereignty, due to involvement in trading blocs.

~ Loss of culture, as trade brings foreign products.