Extract 4

Question 1

Definition of absolute advantage

Answer 1

Where one country is able to produce more of a good or service with the same amount of resources, such that the unit cost of production is lower

Question 2

Definition of comparative advantage

Answer 2

Where one country produces a good or service at a lower relative opportunity cost than others

Question 3

Effects of international trade (5)

Answer 3

-Increased global GDP: specialisation
-Economies of scale: higher production for global markets
will reduce average cost of production
-Increased competition: downward pressure on prices-
forces firm to decrease AC -efficient
-Dynamic efficiency
-Factor prices (p.248)

Question 4

Definition of terms of trade

Answer 4

The price of a country’s exports relative to the price of its imports

Question 5

How to stimulate progress from primary-secondary sector (7)

Answer 5

-Government borrowing
-Government control of banking system
-Investment in education
-Supervision/subsidy of infrastructure
-Promote rural to urban migration
-Seek FDI
-Establish protectionist policies: tariffs to promote domestic
industry.

Question 6

Economists’ models of development (3)

Answer 6

Rostow- 5 stages
Lewis- 2 sector
Harrod and Domar- Growth model

Question 7

Define inter-industry trade

Answer 7

Trade involving the exchange of goods and services produced by different industries

Question 8

Define intra-industry trade

Answer 8

Trade involving the exchange of goods and services produced by the same industry

Question 9

Define intra-regional trade

Answer 9

Trade between countries in the same geographical area; e.g. UK and Germany/ USA and Canada

Question 10

Define inter-regional trade

Answer 10

Trade between countries in different geographical areas;

e.g Haiti trading black hairy dildos with North Korea

Question 11

Evaluation of comparative advantage as an explanation of global trade patterns (POSITIVE) (1)

Answer 11

Helps to explain why some countries export/produce capital goods and others export primary goods

Question 12

Evaluation of comparative advantage as an explanation of global trade patterns (NEGATIVE) (6)

Answer 12

-Ignores economies of scale
-If it were true there would be no intra-industry trade
(but there is, UK drivers use Audi, German can use Jaguar)
-Most trade is based on tastes/fashion
-Faulty calculation: transport costs not included
: negative externalities not included
-Straight PPC: assume all factors and homogeneous
-Ignores exchange rate

Question 13

Benefits of globalisation (4)

Answer 13

• Higher living standards for more people
• Enjoyment of global brands
• Spreading best practice and technology transfer
• Improved medical supplies; could increase life expectancy

Question 14

Outline the pattern of global trade

Answer 14

• Developed economies dominate
• Developed countries benefit more from trade as they tend to produce higher value added goods/services which command a higher price
• Although, the share of developing countries is rising (both with developed countries and intra)

Question 15

Michael Tordaro’s definition of development (3)

Answer 15

• Increase in availability and distribution of basic life-sustaining goods
• Increase in standards of living (material and non material)
• expansion of economic and social choices available to people