Absolute Advantage

Question 1

Absolute Advantage

Answer 1

Where a country can produce a product more efficiently than another country

1. By producing more than another country with the same amount of resources
2. By having better access to natural resources, higher levels of education and skilled labour

Question 2

Limitations

Answer 2

1. That benefits are only attainable for countries with an absolute advantage to leverage
2. Paints a bleak picture for developing/under-developed countries that don’t have an absolute advantage in any production

Question 3

Assumptions: Smith’s theory

Answer 3

1. Two countries, producing two goods
2. The size of the economies is equal
3. Transportation costs are ignored
4. Constant returns to scale
5. No trade barriers