Chapter 36: International specialisation

Question 1

Advantages for consumers

Answer 1

• Output higher allowing more goods and services for consumers and hence raising living standards
• Higher quality as it enables firms in the country to concentrate on producing the product to develop skills and techniques in its production
• Lower costs of production and the benefit passed on to consumers in the form of lower price

Question 2

Disadvantages for consumers

Answer 2

• One country or a small number of countries may gain control of most of the global market for a product and may use its or their power to restrict supply and push up price
• Foreign specialists may not follow the same health and safety standards as in the home
• Any problems that may occur in the countries that are producing the product, including natural disasters, may mean that the products are unavailable

Question 3

Advantages for firms

Answer 3

• Can produce the product on a large scale which could enable them to take advantage of economies of scale
• Firms can also buy their raw materials from specialist firms which are producing high quality raw materials at low costs
• Engaging in international trade can help firms in the exchange of new management ideas, information about new products, and new technology

Question 4

Disadvantages for firms

Answer 4

• Firms become more dependent on other countries for the markets of the products they produce and for the source of their raw materials
• Foreign government may put a tax on imports and restrict the export of raw materials
• Firms could experience a fall in demand
• Tastes may change
• Firms in other countries may become more efficient
• Substitute product developed

Question 5

Advantages for the economy

Answer 5

• Raises allocative efficiency and raises real GDP
• Allows countries to produce goods that are best suited
• Consumer outside its PPC
• Economy’s resource will not be idle
• Could keep inflation low - Economy produces at a lwo cost and may have the opportunity to import from coutnries that are efficient at what they are producing
• Boost its sales of exports

Question 6

Disadvantages for the economy

Answer 6

• If demand suddenly falls or costs rise, country can run into difficulties
• Structural unemployment may increase if labour is immobile
• High transport costs may also offset any cost advantage a country has in producing a produce
• If goods are heavy it may be more efficient for the importing economies to produce them themselves