1.2 Specialisation and Trade Flashcards
(7 cards)
1
Q
What is Comparative Advantage?
A
Countries should specialise to goods where there is the lowest opportunity cost
2
Q
Who made the theory of CA?
A
David Ricardo
3
Q
What is absolute advantage?
A
Where one country’s potential output is higher than another’s
4
Q
Assumptions of CA?
A
- No trade barriers
- Low transport costs
- Factor mobility
5
Q
Advantages of spec + trade?
A
1) Economies of scale
2) Increased competition
3) Reduced prices
6
Q
Drawbacks of spec + trade?
A
1) Exposure to external shocks
2) Structural unemployment
3) Negative externalities
7
Q
Demand-supply diagram accounting for world trade?
A
