Specialisation & Trade

Question 1

What is trade?

Answer 1

Trade is the voluntary exchange of goods/services between two sovereign nations

Question 2

What are the benefits of trade?

Answer 2

1. Better diplomatic relations (less likely to go to war with eachother)

2. Greater utility worldwide (provides greater choice)

3. Greater output worldwide

Question 3

Why would two nations engage in a trade?

Answer 3

If the trade is mutually beneficial for both parties

Question 4

What what is absolute advantage?

Answer 4

When a country can produce more goods using fewer inputs than their counterparts

Question 5

What is comparative advantage?

Answer 5

When a country can produce goods/services at a lower per unit opportunity cost than another nation

Question 6

How is per unit opportunity cost calculated?

Answer 6

Units given up divided by units gained

Question 7

What are the two types of questions in trade analysis

Answer 7

Output questions
Input questions

Question 8

What is an example of an output question?

Answer 8

The opportunity cost of producing …?

Question 9

What is an example of an input question?

Answer 9

How long does it take to produce…?

Question 10

If two countries have a comparative advantage…

Answer 10

They should engage in trade