Topic 6.2 Trade

Question 1

Why does trade take place?

Answer 1

This is because countries have either of these 2 characteristics:
- Absolute Advantage
- Comparative Advantage

Question 2

Absolute advantage

Answer 2

When a country can produce more goods/services compared to another country using the same resources.

Question 3

Comparative advantage

Answer 3

When a country specialises in producing a good/service where they have a lower opportunity cost compared to another country, then trade.

Question 4

Benefits of trade

Answer 4

1) Maximum output of efficient production - allocative efficiency (as countries with advantages have less waste)
2) Lower prices (as ac/u decreases)