Specialisation And Trade Flashcards
1
Q
What is absolute advantage?
A
When one country can produce a good with fewer resources than another
2
Q
What is comparative advantage?
A
A country has a comparative advantage if it can produce a good at a lower opportunity cost
3
Q
The law of comparative advantage
A
This states that trade can benefit all countries if they specialise in goods in which they have a comparative advantage
4
Q
If India has a lower opportunity cost than the Uk who has the comparative advantages
A
India
5
Q
Limitations to the theory of comparative advantage? (4)
A
- Assumes no transport cost- can prohibit the benefits of trade
- Increased specialisation may lead to diseconomies of scale
- Government may restrict trade through tariffs
- Comparative advantage measures static advantage but not dynamic advantage. In the future India may switch the product it specialises in.