Specialisation And Trade Flashcards
What is international trade?
The exchange of products and services across geographic borders
Trade doesn’t take places between countries it takes place between economic agents of the countries e.g business, consumer and government.
What is free trade?
A trade that is free from artificial barriers such as imports tariffs, quotas and other trade barriers.
What is the importance of trade for developing countries?
A trade surplus may allow for an improvement in the balance of payments
Increased employment in export industries
Fall in prices for consumers, increases real income
What are the risks of trade for developing countries?
Volatile global prices
Increased inequality
Structural unemployment
What is absolute advantage?
A country can produce a product using less resources than other nations.
What is comparative advantage?
A country has a relatively lower opportunity cost when it decides to specialise in a particular product.
What are the assumptions of a comparative advantages?
Constant return to scale
Factor mobility between industries
No import control
Low/no transport costs
Goods are homogenous
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