4.1.2 Specialisation and trade

Question 1

What is trade

Answer 1

Trade allows countries to specialise in producing the g/s that can be produced efficiently and is therefore associated with economic development

Question 2

What is free trade

Answer 2

System of trade policy that allows traders to trade across national boundaries without interference from the government

Question 3

What is David Ricardos belief

Answer 3

Its inefficient for countries to produce everything they wish to consume, so transferring factors of production to a more productive industry allows national output and standards of living to increase.

Question 4

What is absolute advantage

Answer 4

When one country can produce with fewer resources than another they should specialise in that good or service

Question 5

What is comparative advantage

Answer 5

When a country can produce a good with a lower opportunity cost they should specialise in that good

Question 6

What are the assumptions made when considering comparative advantages

Answer 6

There are no transport costs, no economies of scale, homogenous goods, only 2 economies and 2 goods, perfectly mobile factors of production, no trade barriers

Question 7

What are the advantages of specialisation and trade

Answer 7

Lower prices
More choices
Economies of scale
Economic growth
Living standards
Improvement in global allocation of resources

Question 8

What are the disadvantages of specialisation and trade

Answer 8

Current account deficit if country isn’t competitive
Danger of dumping and unemployment
No development of industries without the comparative advantage
Monopolies become larger
Infant industries unable to compete