Specialisation & Globalisation

Question 1

Absolute advantage

Answer 1

Being able to produce more of a good than another country

Question 2

Comparative advantage

Answer 2

Being able to produce at a lower opportunity cost than another country

Question 3

Theory of comparative advantage

Answer 3

If we produce goods that we have a comparative advantage to, world output increases

Question 4

Limitations of comparative advantage theory

Answer 4

Assumes costs are constant. (No diseconomies)
No transport costs
No trade barriers that distort C.A

Question 5

Pros and Cons of specialisation and trade(3)

Answer 5

Lower prices+more choice eval:diseconomies
Increased output+living standards eval:3 assumptions (dise.o.s, transport costs, trade barriers)

E.O.S as trade opens international markets to reduce costs eval: Overdependence on imports/exports

Question 6

Characteristics of globalisation

Answer 6

Increased movement of labour
Increased movement of financial capital
Increased trade
Increased trade-gdp ratio
Increased specialisation

Question 7

Causes of globalisation (4)

Answer 7

Trade liberalisation
Improvements in IT/Transport
Containerisation

Question 8

Impacts of globalisation

Answer 8

Consumers-lower prices, more choice, but Diderot effect
Government-increase tax revenue from tariffs etc, but transfer pricing
Producers-lower costs due to outsourcing, but small corps vs MNCs (No E.O.S, high barriers to compete)
Workers-increased opportunities, but can be structural unemployment (industries move due to comparative advantage

Question 9

Pros and cons of globalisation on individual countries

Answer 9

Increased living standards. Can import more essentials and luxuries

Overdependence on imports/exports. E.g 50% of Saudi’s GDP=Oil