Flashcards
Absolute and Comparative Advantage
Cards in this deck (10)
- 1When does a country have absolute advantage of its trading partners?if it is able to produce a good with smaller quantity of inputs
- 2What is worthwhile if a country has a good of absolute advantage?Specialising in that particular good
- 3When does a country have a comparative advantage in the production of a good or service?if it produces at a lower opportunity cost than its trading partners
- 4What are the 'Terms of Trade?'What the two countries must agree to benefit from trade- effectively the price
- 5What is required to make the terms of trade worthwhile?the terms of trade must lie between the two relative opportunity costs for the two countries to benefit
- 6When can a country have a comparative advantage?(4)Different availability of factors of production:
- Cheap or skilled labour
- Existing capital through previous investment
-Abundant natural resources - 7What does the Heckscher-Ohlin theory state?That a country will export products produced using factors of production that are abundant and import products whose production requires the use of scarce resources
- 8What does the principal of comparative advantage state?• states that a food should be produced by the country that has the lowest opportunity cost of producing it
- 9What will be the effect of comparative advantage?through specialisation and trade, all countries will be better off
- 10Weaknesses of comparative advantage? (5)1) Comparative advantage is not permanent
2) The ‘terms of trade’ (import and export prices) may not reflect the comparative advantage rates
3) Trade may create negative externalities
4) Transport costs need to be taken into account
5) Specialisation in a narrow range of goods makes the country vulnerable to sudden and unpredictable changes in supply and demand conditions
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- A-Level Macro yr13 (4.2.6.2 Trade) Flashcards on Absolute and Comparative Advantage , created by Maya Khangura on 21/02/2017.
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- Maya Khangura
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