Specialisation and Trade Flashcards
1
Q
Define the term absolute advantage
A
when it can produce more of that good than another country
2
Q
Define the term comparative advantage
A
when it can produce that good at a lower opportunity cost than another country
3
Q
Assumptions of theory of comparative advantage
A
- average cost of production is constant
- there are no trade barriers
- there are no transport costs
4
Q
Limitations of theory of comparative advantage
A
- increased specialisation = DEOS = rising average costs
- trade barriers might distort comparative advantage
- transport costs might distort comparative advantage
5
Q
Advantages of specialisation and trade
A
- more choice, lower prices
- economies of scale
- higher living standards
6
Q
Disadvantages of specialisation and trade
A
- demotivation, less productivity - higher prices
- overdependence on imports/exports
- based on unrealistic assumptions
