Specialisation and Trade

Question 1

International Division of Labour

Answer 1

Describes different countries specialising in producing different goods

Question 2

Reasons for International Trade

Answer 2

Differences in factor endowments - Countries have different factor endowments, eg Saudi Arabia has large oil reserves, whilst Japan has virtually none.

Price

Product Differentiation

Political Reasons

Question 3

Absolute Advantage

Answer 3

Occurs when a country is absolutely best (or more technically efficient) than other countries in a particular industry.

Question 4

Comparative Advantage

Answer 4

This is measured in terms of opportunity cost. The country with the least opportunity cost when producing a good possesses a comparative advantage in that good.

Question 5

Example of Absolute and Comparative Advantage w/ PPC

Answer 5

https://image.ibb.co/gNfDno/Specialisation_and_trade_screenshot.png

Assumption - India and Ghana both have same factors of production and same quantity and quality

India has absolute advantage for both products because India can produce more using same factors of production.

Ghana has comparative advantage for cotton. India have comparative advantage for computer. This is because India are sacrificing more to manufacture cotton, therefore Ghana have a lower opportunity cost.

https://image.ibb.co/gjdoL8/Specialisation_and_trade_screenshot_2_ppf.png