International Trade

Annotations:

• States that each country should specialise in the production of that good in which it has an absolute advantage, i.e. if it can produce the good more efficiently than other countries

1. Assumptions
   1. There are two countries
   2. Two products are produced
   3. No transport costs exist
   4. There is one factor of production

Annotations:

• States that a country should specialise in the production of those goods and services in which it is relatively most efficient and trade for the remainder of its requirements

1. Assumptions/Limitations
   1. Transport costs are ignored

      Annotations:

      • For an island nation like Ireland, transport costs can be a major cost factor and can act as a barrier to trade. A firm's cost efficiencies may be eliminated by the transport costs involved.
   2. Perfect mobility of the factors of production is assumed
   3. Free Trade is assumed to exist
   4. Law of diminishing marginal utility is ignored
   5. An equal distribution of benefits occurs

1. Educated and skilled workforce

   Annotations:

   • Companies locate here without incurring exorbitant training costs. The workforce had developed specific skills in production over a period of time, e.g. IT, pharmaceutical companies
2. Climate

   Annotations:

   • Our climate is suitable for production of crops like potatoes and grazing for livestock (beef).
3. Low rate of Corporation Tax

   Annotations:

   • This means that the costs of operation may be more competitive in Ireland than in other countries. The 12.5% rate makes Ireland attractive to multinationals looking to cut costs.