Specialisation & Trade

Question 1

Absolute adv

Answer 1

country able to produce gs more cheaply than another country

Question 2

Comparative adv

Answer 2

country able to produce gs at lower oppo cost than another country

Question 3

Absolute adv pros (4)

Answer 3

increase competition
increase S of gs
dynamic efficiency
stimulate ST & LR econ growth

Question 4

increase competition

Answer 4

• pressure on P to keep costs & prices down
• less monopoly power in domestic firms
• allocative & productive efficiency

Question 5

increase s of gs

Answer 5

-countries get access to resources they normally dont have
- exploitation of comp adv
- trade source of econ dev (X-M)

Question 6

Dynamic efficiency

Answer 6

• Trade sped up pace of tech progress & innovation across diff industries
• increase C choice

Question 7

Stimulate ST & LR econ growth

Answer 7

• increase X = injection … multiplier & accelerator effect on NI
• S side improvements - increase I & increase factor mobility between countries

Question 8

factor endowment

Answer 8

Qty & Qual of countries FofP & lvl of tech
- countries specialise in F & Endower products f use

Question 9

Specialisation based on comp adv

Answer 9

productive resources not distributed evenly between nations … nations specialise in g/s which their natural/human capital resources are appropriate to produce

Question 10

Assumptions of theory

Answer 10

dont take into acc:
- ex
- transport cost
- fofp perfectly mobile

Question 11

comp adv pros

Answer 11

world output increase if countries specialise in what they’re relatively good at producing trade = EodS
Increase C choice
promotion of innovation & spread of tech

Question 12

comp adv cons

Answer 12

over dependence
damage envir
loss of culture
structural unemploryment