Th4.1: Advantages of Specialisation and Trade

Question 1

What are the six advantages of specialisation and trade?

Answer 1

world output can be increased
economies of scale
different countries have different factors of production
greater choice
greater competition
isolation

Question 2

World output can be increased

Answer 2

comparative advantage shows how world output can be increased if countries specialise in what they are best at producing - this will increase global economic growth

Question 3

Economies of scale

Answer 3

trading and specialising allows countries to benefit from economies of scale, which reduces costs and therefore decreases prices globally

Question 3

Economies of scale

Answer 3

trading and specialising allows countries to benefit from economies of scale, which reduces costs and therefore decreases prices globally

Question 4

Different countries have different factors of production

Answer 4

different countries have different factors of production and so trade allows countries to make use of factors of production, or the things produced by these factors, which they otherwise may have been unable to

Question 5

Greater choice

Answer 5

trade enables consumers to have great choice about the types of goods they buy, and so there is greater consumer welfare

Question 6

Greater competition

Answer 6

trade also means there is greater competition, which provides an incentive to innovate - this creates new goods and services and new production methods, increasing consumer welfare and lowering costs respectively

Question 7

Isolation

Answer 7

countries which isolate themselves for political reasons, like North Korea, have found that their economies tend to stagnate