Trade

Question 1

Absolute advantage

Answer 1

Where a country with a given resource is able to produce more than another with the same input

Question 2

Comparative advantage

Answer 2

Where a country can produce more of a good with lower opportunity cost than other countries

Question 3

4 sources of comparative advantage

Answer 3

Natural resources
Investment
Labour productivity
Import controls

Question 4

5 criticisms of Ricardo theory

Answer 4

Ignores costs of trade
Assumes specialisation will never see diminishing returns (linear PPF)
Can create structural unemployment as CA isn’t static
For strategic industries countries seek security
Prevents diversification

Question 5

Free trade

Answer 5

International trade without tariffs,quotas or other restrictions

Question 6

WTO

Answer 6

Intergovernmental regulator of trade

Question 7

2 WTO roles

Answer 7

Overseas implementation,administration and operation of agreements
Forum for negotiations

Question 8

Terms of trade

Answer 8

measures a country’s export prices in relation to import prices (Index of x prices/ Index of import prices) x 100

Question 9

If ToT improve…

Answer 9

X down I up

Question 10

If ToT weakens…

Answer 10

X up I down

Question 11

Marshal-Lerner condition

Answer 11

If demand for x is elastic then an increase in terms of trade will worsen current account balance of trade

Question 12

5 reasons trade has slowed down

Answer 12

Secular stagnation
Asian slow down
Slowing liberalization 
Regional trade blocs
Rising prosperity