Theme 4:4.2:Specialisation and Trade

Question 1

what is absolute advantage?

Answer 1

the amount of g+s a country can produce using fewer FOP than another country

Question 2

what is comparative advantage?

Answer 2

Theory that a country should specialise in producing g+s at the lowest opportunity cost

Question 3

limitations of comparative advanatge.

Answer 3

-assumes all costs are constant: doesn’t account for economies of scale
-assumes products are homogenous: products can be compared perfectly
-doesn’t include transport costs: distorts CA
-FOP are perfectly mobile

Question 4

advantages of specialisation and trade

Answer 4

-diff countries have different FOP
-world output can be increased
-countries can benefit from economies of scale
-increased choice for consumers
-greater competition: creates innovation:increased consumer welfare

Question 5

disadvantages of specialisation and trade.

Answer 5

-overdependence
-structural unemployment-jobs lost to foreign
-environmental degradation
-loss of culture-trade brings foreign ideas and culture into the country