4.1.2 Specialisation And Trade

Question 1

4.1.2a
Define Absolute Advanantage

Answer 1

when a country (or firm/individual) produces a good or service using fewer resources than another country

Question 2

4.1.2a
Chains of reasoning for absolute advantage

Answer 2

when a country produces a good or service using fewer resources than another country
lower cost per unit
leads to higher productivity
produce more output with the same inputs
produce the good more efficiently than others
= absolute advantage

Question 3

4.1.2a
Define Comparative Advanantage

Answer 3

when a country produces a good or service at a lower opportunity cost than another country

Question 4

4.1.2a
Chains of reasoning for Comparative Advanantage

Answer 4

when a country produces a good or service at a lower opportunity cost than another country
Lower opportunity cost = sacrificing less of other goods
leads to specialising in the good with the lowest opportunity cost
specialisation = increases overall efficiency
enables both countries to benefit from trade even if one has absolute advantage in all goods.

Question 5

4.1.2a
Assumptions of Comparative Advantage

Answer 5

• Fixed resources + fixed technology
• Only two countries and two goods considered
• Perfect free trade
• No transportation costs
• Constant opportunity cost

Question 6

4.1.2a
Fixed resources + fixed technology

Answer 6

Fixed resources + fixed technology → no changes in production capacity or efficiency → comparative advantage is static (does not change over time)

Question 7

4.1.2a
Only 2 goods produced

Answer 7

Only two countries and two goods considered → simplifies global complexity → ignores multiple countries/goods interactions → reduces realism but makes analysis manageable

Question 8

4.1.2a
Perfect free Trade

Answer 8

Perfect free trade → no tariffs, quotas, or trade barriers → allows countries to specialise fully → maximises gains from trade → but rarely true in practice

Question 9

4.1.2a
No transportation costs

Answer 9

No transportation costs → goods can be moved freely and cheaply → trade always beneficial → but in reality, transport costs can reduce or prevent trade in some goods

Question 10

4.1.2a
Constant Opportunity Cost

Answer 10

Constant opportunity cost → Production Possibility Frontiers (PPFs) are linear → implies no diminishing returns → production can be shifted between goods at a constant rate → oversimplifies real-world increasing opportunity costs

Question 11

4.1.2a
Limitations of the Model

Answer 11

• dynamic comparative advantage
• oversimplification : multiple G/S and countries
• tariffs + quotas = increased costs
• transport = increases costs
• more specialisation = more opp cost = less net gains from specialisation
• FOP = mobile + can move
• increased externalities e.g pollution + job sectors lost

Question 12

4.1.2b
Advantages of Specialisation

Answer 12

• Increased efficiency
• Exploiting economies of scale
• Access to wider variety of goods
• Innovation and productivity gains
• Transfer of knowledge and technology

Question 13

4.1.2b
Increased Efficiency

Answer 13

Comparative advantage = countries focus on producing goods with lowest opportunity cost
= resources allocated efficiently
= ↑ global output + ↑ consumption possibilities for all countrieS

Question 14

4.1.2b
Exploiting economies of scale

Answer 14

specialisation = ↑ production scale
→ firms benefit from internal + external economies (e.g. bulk buying, better technology)
= ↓ average costs → ↑ price competitiveness of exports → ↑ export revenue.

Question 15

4.1.2b
Access to wider variety of goods

Answer 15

allows countries to import what they don’t produce efficiently
= ↑ consumer choice + ↑ product quality + ↑ living standards.

Question 16

4.1.2b
Innovation and productivity gains

Answer 16

→ trade exposes domestic firms to global competition
→ drives innovation + efficiency improvements
= long-run growth + dynamic comparative advantage.

Question 17

4.1.2b
Transfer of knowledge and technology

Answer 17

→ global trade = flow of ideas, techniques, and capital
= ↑ technological progress + ↑ human capital development.

Question 18

4.1.2b
Disadvantages of Specialisation

Answer 18

• Over-specialisation = vulnerability to external shocks
• Structural unemployment
• Overdependence on imports
• Unequal gains from trade
• Race to the bottom in standards

Question 19

4.1.2b
Over-specialisation

Answer 19

Over-specialisation = vulnerability to external shocks
→ e.g. if demand falls or supply chains break (like COVID-19)
→ country overly reliant on one sector
= economic instability + job losses.

Question 20

4.1.2b
Structural unemployment

Answer 20

→ industries that can’t compete with cheaper imports collapse
→ workers may lack transferable skills
= long-term unemployment + ↑ inequality.

Question 21

4.1.2b
Overdependence on imports

Answer 21

→ especially for essentials (e.g. food, medicine, energy)
= weakens economic sovereignty + ↑ exposure to global supply disruptions.

Question 22

4.1.2b
Unequal gains from trade

Answer 22

→ developed countries often capture higher-value activities (R&D, branding)
→ developing nations stuck in low-value-added production
= global income inequality may worsen.

Question 23

4.1.2b
Environmental degradation

Answer 23

↑ production + transport → ↑ CO₂ emissions + pollution
= -ve externalities not priced into global trade.

Question 24

4.1.2b
Race to the bottom in standards

Answer 24

to stay competitive, countries may weaken labour laws / environmental regulations
= ↓ working conditions + ↑ long-term social costs.