Specialisation and trade

Question 1

advantages of specialisation

Answer 1

-costs of production are reduced which can be passed onto consumers in the form of lower prices
-world resources used more efficiently
-global output increased and living standards are raised

Question 2

disadvantages of specialisation

Answer 2

-can lead to overreliance on a singular industry
-if a country starts to specialise in a good/service, other industries might struggle causing structural unemployment

Question 3

disadvantages of international trade

Answer 3

-high transport costs
-international trade increases globalisation which has its own disadvantages

Question 4

absolute advantage

Answer 4

when 1 countries output of a product is greater per unit of resource used than any other country

Question 5

comparative advantage

Answer 5

producing output at a lower opportunity cost than another country

Question 6

terms of trade definition

Answer 6

relative price of imports compared to exports

Question 7

terms of trade index

Answer 7

index of average price of exports
————————————————– x100
index of average price of imports

Question 8

how is trade important for developed countries

Answer 8

-imports crucial to maintain high standard of living
-products are often cheaper when bought abroad due to cheaper labour

Question 9

how is trade important for emerging countries

Answer 9

-import goods that they don’t have the technology to produce therefore increasing standard of living
-trade gives access to new materials therefore new industries can be created helping the emerging country improve its economy