4.1.2 Specialisation and trade

Question 1

Absolute advantage

Answer 1

When a country can produce something using fewer resources than others.

Question 2

Comparative advantage

Answer 2

When a country specialises in goods it can produce at the lowest opportunity cost.

Question 3

Dynamic gains from trade

Answer 3

Productivity gains from trade, including knowledge sharing, economies of scale, and innovation.

Question 4

Fairtrade

Answer 4

Trade ensuring fair prices for producers in developing countries.

Question 5

Free trade

Answer 5

Trade without restrictions like tariffs or quotas.

Question 6

Relative export prices

Answer 6

A country’s export prices compared to competitors.

Question 7

Specialisation

Answer 7

Focusing on producing one product to create a surplus for trading

Question 8

Trade creation

Answer 8

Shifting to lower-cost suppliers when joining a trade agreement or customs union.

Question 9

Trade diversion

Answer 9

Switching to higher-cost suppliers within a customs union due to external tariffs.