4.1 - Specialisation + Trade

Question 1

What are the 2 types of gains made by trading nations?

Answer 1

Dynamic
Static

Question 2

What are static gains?

Answer 2

Increase in output + lower costs due to specialisation + trade in goods with comparative advantage

Question 3

What are dynamic gains?

Answer 3

Increased competition leads to higher quality output
Due to higher investment + greater efficiency

Question 4

What % of trade occurs between -
.Developed nations .Developing nations

Answer 4

Developed - 50%
Developing - 15%

Question 5

What are the 2 main reasons for increased trade between nations?

Answer 5

Comparative advantage
Economies of Scale

Question 6

What is comparative advantage?

Answer 6

Ability to produce a good at a lower relative opportunity cost

Question 7

What drives trade between developed nations when there is no comparative advantage?

Answer 7

Economies of scale
Product differentiation

Question 8

What are the main arguments against free trade?

Answer 8

Income distribution + wage inequity
Loss of low skill industry
Rising unemployment

Question 9

What is absolute advantage?

Answer 9

Ability to produce good/service in larger quantities during same time period with least amount of resources

Question 10

What is the main benefit of comparative advantage?

Answer 10

Cheap production

Question 11

How does comparative advantage increase output?

Answer 11

Specialisation -> productivity etc
Net exports
Balance of trade