Specialisation and Trade Flashcards
What is specialisation
When a country or firm focuses on producing a specific good or service
What are some international advantages of specialisation
Greater efficiency and productivity (what they best at)
Consumer benefits (variety, quality and price)
More efficient resource allocation
Economies of scale
International cooperation from interdependence
What are some disadvantages of specialisation
Job displacement in domestic country
Dependency
Trade imbalances
Loss of control over economy
What’s the difference between absolute and comparative advantage
Absolute advantage is when you can make more of the good than another country
Comparative is when it takes you less resources to create a unit of the good (opportunity cost)
What is the main benefit of specialising and trading
More total goods of each
What are terms of trade
The agreed upon conditions that would benefit both countries - index of exports / index of imports
What are some assumptions of the comparative advantage model
No barriers to trade
Constant returns to scale (no EoS)
No externalities in production or assumption
High mobility of labour and capital
What are some factors that could affect comparative advantage
Natural resources
Unit wage costs
Infrastructure
Import controls
Exchange rates
